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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#511

Post by mbesto »

akudha wrote: post #484
wffurr wrote: post #477

I never learn anything in these threads. It seems like everyone is just talking past each other with their pet theories and no particular way to tell which if any are correct or useful.

Economics is a weird subject, even economists get predictions wrong all the time. It is easier to talk about logical subjects like Math or programming, vs something like social issues or economics. I don't know how to have a useful conversation about such topics, I understand your frustration. I suppose everyone has good intentions and is trying to help at the same time by sharing their theories - which could be bad…

> Economics is a weird subject, even economists get predictions wrong all the time.

It's because economics is seen as a science but ignores (not completely) human behavior. You can't test economic theories with the scientific method because there is simply no way to create a market vacuum to test.

This is why behavioral economics is so interesting IMO. It's not definitive but it at least it provides explanations.

Re: Home Price to Income Ratio

#512

Post by SilasX »

woofie11 wrote: post #434
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…

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%: - Housing prices plummet to $600,000, assuming people are willing to spend the same per month. - My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly. - If I move out, and I rent out my home, it covers monthly payments approximate…

>- My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly.

>- If I move out, and I rent out my home, it covers monthly payments approximately exactly.

In any situation where interest rates go to 6%, there will probably also be some upheaval that affects your earnings and ability to rent it out at the present rental rate. The risks are correlated.

Re: Home Price to Income Ratio

#513

Post by m_ke »

user_named wrote: post #510
m_ke wrote: post #28

Earlier quoted context omitted.

Simple solution would be to put a property and sales tax ramp on additional homes. Make landlords who own N homes pay 1.5^N the normal rate.

The simple solution is to build more.

As long as landlords can use equity to buy up new buildings driving up property values and rents they will continue to do so.

It's the same equation as crypto mining, as long as there's a return on investment they will continue to buy up GPUs.

Re: Home Price to Income Ratio

#515

Post by [deleted] »

throw123123123 wrote: post #483
woofie11 wrote: post #434

Earlier quoted context omitted.

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%: - Housing prices plummet to $600,000, assuming people are willing to spend the same per month. - My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly. - If I move out, and I rent out my home, it covers monthly payments approximate…

You are a lot worse-off. If you buy at 6%, and then rates go down to 2%, you can refinance and your home is valued at a higher rate. IF you buy at 0%, you bought the house at the peak, and cannot refinance the debt.

[deleted]

Re: Home Price to Income Ratio

#516

Post by jdkee »

Aeolun wrote: post #455
game_the0ry wrote: post #375

Earlier quoted context omitted.

Increasingly those trailer parks are being bought by private equity and institutional investors.

What do they do with them? Doesn’t seem like something you renovate and resell?

They extract the maximum amount of rent they can.

https://www.newyorker.com/magazine/2021/03/15/what-happens-w...

Re: Home Price to Income Ratio

#517

Post by [deleted] »

jrochkind1 wrote: post #469
woofie11 wrote: post #434

Earlier quoted context omitted.

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%: - Housing prices plummet to $600,000, assuming people are willing to spend the same per month. - My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly. - If I move out, and I rent out my home, it covers monthly payments approximate…

> If I move out, and I rent out my home, it covers monthly payments approximately exactly. That's not actually sustainable. You have repairs you're going to need to do, sometimes unexpectedly large ones. You have tenants that move out, and then marketing expenses and/or vacancies. If you're unlucky you have bad tenants that do damage or don't pay or need to be evicted after not paying. It can work temporarily (unless…

[deleted]

Re: Home Price to Income Ratio

#518

Post by TedDoesntTalk »

RayVR wrote: post #438
bko wrote: post #433

Earlier quoted context omitted.

> 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 is one of the big dangers of having an essential need like housing cost such a large multiple of income. You could always walk away. Better to be under water on a mortgage than own it outright. This is called a strategic default. Lenders know this…

This is only true in states with non-recourse loans. Many states have full recourse home loans that would require the homeowners declare bankruptcy to "walk away"

Yeah, and I don’t think bankruptcy disappears from your credit report after 7 years like other items. Does it?

Re: Home Price to Income Ratio

#520

Post by shados »

yazaddaruvala wrote: post #326
shados wrote: post #297

Earlier quoted context omitted.

The math for this ends up being extremely complex. The leverage is one part, and a big one. You have to account for closing costs (especially when selling), and uncertainty around how long you'll stay. But you could theoretically rent it out. But as we've seen, some cities could keep an eviction moratorium going and that could be costly. Housing in some areas skyrocketed in values, but you could be buying a lemon sin…

What would be great are hyper-specific REITs. e.g. I want to “own land” in Seattle so I’m never priced out, but averaged across the city so there is no single point of risk. With the added benefit that I can add capital in small increments. If such a REIT were structured as a COOP that would be even even better from my perspective.

Yeah. At the same time, I have a condo in a super hot area of a tech hub, and it still didn't really appreciate any faster than the market (you'd think it did with those crazy leaps, but the market has been pretty crazy for the last couple of years too).

If it wasn't for the leverage, no tax capital gain and rent saving and fringe benefits of owning a home, it wouldn't be that great an investment, so REIT don't really compare.

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