Home Price to Income Ratio • Hacker News Board

Re: Home Price to Income Ratio

#421

Post by notJim » Mon, Sep 20, 2021, 11:58 PM UTC

robocat wrote: post #180

greesil wrote: post #128

Earlier quoted context omitted.

You can if you're in a liquidity trap. Question is, are we in one now?

I imagine creating cash to solve a liquidity trap is like continuously taking laxitives for a constipation problem... At some point you get a different problem! On topic: my experience of housing prices in NZ is that people bid up house prices to the point that they can only just afford the mortgage payments. Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are hap…

> Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty

This surely can't go on forever though. People's ability and desire to consume housing is not infinite, particular in a given locale. If they're buying them to rent out, then a flood of other wealthy people looking for tenants reduces the landlords' bargaining power in the market, which means rents have to drop eventually. If this isn't happening yet, it's most likely because the amount of housing being produced is still too small.

You can't purely demand-side subsidy your way out of housing being expensive. You have to build.

Re: Home Price to Income Ratio

#422

Post by bluGill » Mon, Sep 20, 2021, 11:58 PM UTC

elihu wrote: post #374

brendoelfrendo wrote: post #238

Earlier quoted context omitted.

This is something that Elizabeth Warren and her daughter Amelia covered in their book "The Two Income Trap." I'm aware that recommending a book by a political figure is fraught, but I'm not aware of any economists who took umbrage with the claim, either. They make the observation in chapter 1 that "Even as millions of mothers marched into the workforce, savings declined, and not, as we will show, because families wer…

> Housing is a great way to establish a level of security for your family and kids; but there's a finite number of houses with proximity to good schools, jobs, and other necessary resources, and so families needed to dedicate larger and larger portions of their income to compete against other dual-income families that were bringing new money to the housing market. One way out of that is simply to increase the supply…

Welcome to the suburbs

Re: Home Price to Income Ratio

#423

Post by UncleMeat » Mon, Sep 20, 2021, 11:59 PM UTC

nostromo wrote: post #165

jandrese wrote: post #124

How much of this is a result of our "don't tax the rich" policies that created a staggering amount of wealth at the top that has nowhere else to go? So many ultra rich investors are looking for something, anything, to invest in. Plus there is the feedback loop of massive growth you get as the bubble inflates. Is this a direct result of our fiscal policy? Have we destabilize the economy in order to create the richest…

What "don't tax the rich" policies? 61% of Americans pay zero income tax. Why are the rich getting tremendously rich? Because the Federal Reserve has printed money at an astonishing rate, which inflates asset prices. Who owns the most assets? The rich do. People are so focused on taxation (because it's something the average poor or middle class understands) when the real issue is the Fed (something most Americans are…

> 61% of Americans pay zero income tax.

This was just last year. The norm is far lower, but was inflated by stimulus checks.

Re: Home Price to Income Ratio

#424

Post by [deleted] » Tue, Sep 21, 2021, 12:00 AM UTC

game_the0ry wrote: post #384

barneysversion wrote: post #360

Earlier quoted context omitted.

> If you are projecting a receding economy and/or decreased demand for the land you are buying, then it does not make sense to pay as much as you can afford... I think this is the above commenter's concern; homebuyers are not adequately pricing the risk of rising interest rates. If interest rates go up, demand falls and you're left in a highly leveraged position that amplifies your losses. Monthly mortgage payments d…

Bingo. > If interest rates go up, demand falls and you're left in a highly leveraged position that amplifies your losses. There is a reason why debt is called “leverage” - it leveraged investment returns up when your the exit works out. But it also leverages return losses down when the exit doesn’t work out.

[deleted]

Re: Home Price to Income Ratio

#425

Post by [deleted] » Tue, Sep 21, 2021, 12:04 AM UTC

exporectomy wrote: post #417

joppy wrote: post #393

Earlier quoted context omitted.

Whatever the case, what you end up with is an asset whose actual value is tied to the interest rate (interest goes down, people can afford larger loans with the same repayments, therefore houses are worth more). This is a highly leveraged situation: if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this…

Home ownership is not an essential need. People aren't excluded from housing because of that risk. They can just rent from a landlord who's taking that risk themselves.

[deleted]

Re: Home Price to Income Ratio

#426

Post by zepto » Tue, Sep 21, 2021, 12:05 AM UTC

joppy wrote: post #393

game_the0ry wrote: post #284

A more relevant metric to consider - monthly mortgage payment to monthly income ratio. Average interest rates in 2007 were 6.34% vs ~2.80% today. [1] * 6.34% / $2,000 monthly payment / 20% down (~$65k) >> $328,319 price of home * 2.80% / $2,000 monthly payment / 20% down (~$98k) >> $489,794 price of home Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price. When…

Whatever the case, what you end up with is an asset whose actual value is tied to the interest rate (interest goes down, people can afford larger loans with the same repayments, therefore houses are worth more). This is a highly leveraged situation: if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this…

Not if you get a fixed rate.

Re: Home Price to Income Ratio

#427

Post by stana » Tue, Sep 21, 2021, 12:06 AM UTC

jbay808 wrote: post #409

hourislate wrote: post #390

Earlier quoted context omitted.

I guarantee that housing in Toronto will continue to climb at 10%-15 % per year. Housing is the only thing keeping the Canadian economy afloat. The BoC has no choice anymore, they will pay your mortgage if necessary. I dare them to raise rates to just 5%, there will be a collapse that will leave half the country in the streets. If you can afford to buy, buy with both hands. You will double your money in the next 5 ye…

Well, it better keep going for another five years after that, and then another five years after that, and so on, because anyone buying a $5 million 4-bed-2-bath house for their family is only more dependent on that trend continuing than the one who paid $2 million. The price tag is only justified when there's no end in sight to the appreciation. Nobody would pay $5 million for that house if its value stops rising, le…

"The price tag is only justified when there's no end in sight to the appreciation." Isn't that pretty much the definition of an asset bubble. Prices have decoupled from underlying asset utility (eg. rent) and it has become speculation on future price growth. As no return to justify the price all of this seems to hang on optimism/pessimism of future buyers. And availability of easy credit of course.

Re: Home Price to Income Ratio

#428

Post by quantumBerry » Tue, Sep 21, 2021, 12:08 AM UTC

bobthepanda wrote: post #398

quantumBerry wrote: post #354

Earlier quoted context omitted.

Raw land is cheap. Housing codes are what keep people like myself out of the housing market. If I could just dump a yurt on the land, or a cabin like our forefathers, then housing prices would be a total non issue. But a bunch of selfish NIMBYs are so scared of the poors building a yurt instead of a 2000 sq ft brick house for two people and a dog, they'll never allow it.

the problem is not really that, since you could just move out to the sticks and do that if you really wanted to. heck, some places in the Rust Belt literally give away homes. the problem is that in our desirable cities, where people want to live (as evidenced by high prices per sq ft) we have more or less stopped the natural progression of single family houses into low-rise buildings, low-rise into mid-rise, and mid…

I'm not arguing against the progression of housing. I'm arguing to be able to build a house I can afford on land I own. Building codes serve to lock property owners out of the means to actually live on their own property. And even if these high rises become more legalized, it's a long time from that happening and institutional investors and large construction and architecture firms executing and them finally being sold, in the meantime I have to live somewhere. It's also worth noting condos are a depreciating asset, unlike land, and you are beholden to the covenants and agreements of the condo including maintenance and other mandatory assessments.

I know some guy in Manhattan is going to tell me "but it cost 0.5M for a 1000 sq ft plot here, and only 0.4M for a condo" Which may be correct, but for the many of us living in lower density cities that still have tons of jobs like Kansas City, Dallas, or Omaha there's still a huge delta between the value of a small plot of land + 10k to build yurt/cabin and the price of a condo. That reflects the economic efficiency of the owner built small structure vs the condo in these areas.

Living out in the sticks has the same economic problem as you either have to be rich, retired, or score a very rare lucrative job to come out ahead. The economic cost is as high or higher than the new high-rise condo, it's just hidden behind opportunity cost.

I really challenge you to find the percent of population living in an area where raw land enough for a small structure is more expensive than a condo. It's a very small percent.

Re: Home Price to Income Ratio

#429

Post by ed25519FUUU » Tue, Sep 21, 2021, 12:08 AM UTC

zepto wrote: post #426

joppy wrote: post #393

Earlier quoted context omitted.

Whatever the case, what you end up with is an asset whose actual value is tied to the interest rate (interest goes down, people can afford larger loans with the same repayments, therefore houses are worth more). This is a highly leveraged situation: if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this…

Not if you get a fixed rate.

When I checked out a 5/1 arm at around 2.25%, even the maximum interest rate was 7.5%, which is pretty good historically.

Re: Home Price to Income Ratio

#430

Post by hahajk » Tue, Sep 21, 2021, 12:08 AM UTC

zepto wrote: post #426

joppy wrote: post #393

Earlier quoted context omitted.

Whatever the case, what you end up with is an asset whose actual value is tied to the interest rate (interest goes down, people can afford larger loans with the same repayments, therefore houses are worth more). This is a highly leveraged situation: if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this…

Not if you get a fixed rate.

If you try to sell your asset, buyers will be stuck with a higher interest rate, which pushes up the effective price of your home (and the extr money doesn’t go to you.)