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Home Price to Income Ratio

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Re: Home Price to Income Ratio

#611

Post by imtringued »

hcurtiss wrote: post #290
blake1 wrote: post #265

Earlier quoted context omitted.

Do you mean fiscal policy? You absolutely can infuse trillions of dollars into the economy without causing inflation after the economy takes a $4T hit from a pandemic; the government spending will be what prevents disastrous deflation. People worry about inflation, but forget how awful deflation is. (And on a side-rant, it’s really bizarre how the hyperinflation of Weimar Germany is cited as enabling the rise of the…

I've never understood how deflation could ever be a concern in countries that print their own money. Can you not just print your way out of it every time?

Politicians don't give a damn about deflation. They will tell you how governments must be responsible with their budgets and do debt ceilings and austerity, while simultaneously promising income tax cuts for the rich which they finance by cutting public investment. It'll trickle down.

Re: Home Price to Income Ratio

#612

Post by jiggawatts »

rayiner wrote: post #257
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…

Segueing from “rich” to “multi-billionaires” is a neat trick by rich professionals to divert attention from themselves. Five years ago, we moved into a 3,000 square foot house in the Annapolis suburbs. We are right on the water so it cost a princely $485,000. But it was easy to get a house in the neighborhood for $300,000 or so, or just 4 times the county’s median income. As a result, the neighborhood has lots of you…

For comparison: Sydney has a median house price of AUD $1.4M right now, and a house on the water is $2M-$6M easily.

Median income is $56K for Australians in general, and about $90-$110K for areas of Sydney that have water views.

Recently the federal deputy treasurer made a speech that younger residents of the city should consider moving to the country to afford a home. The not so minor issue with this statement was that you have to go very far down the list of towns by size in the state to get to a place where he himself could afford a home on his government salary of well over $200K a year!

Re: Home Price to Income Ratio

#613

Post by Valakas_ »

qwerty456127 wrote: post #386

To me it feels like home prices are the single most important bug in the economy. If we filter out skilled IT professionals (and other high-paid jobs), fundamentally rich people and also extremely poor (homeless in developed countries and those living in stick/garbage huts in the "3-rd world"), the rest mostly spend almost all their income on paying for their home. We invent new technologies but average homes become…

It's not a bug, it's a feature.

- How do you keep so big part of the population working all their lives otherwise in jobs they don't like if not by necessity?

- How can you earn as much passive income as possible (landlords, investors)?

Re: Home Price to Income Ratio

#614

Post by Valakas_ »

gruez wrote: post #49
xnx wrote: post #33

I appreciate this effort since this gets closer than reporting on house prices alone. As other's have pointed out there are a lot of significant factors being left out (e.g. interest rates). One of my favorite analysis is the historical chart on how many hours you had to work for an hour of artificial (candle, lamp, electric, etc.) light. I'd love to see this applied to housing, though housing is extra difficult beca…

>As other's have pointed out there are a lot of significant factors being left out (e.g. interest rates). >though housing is extra difficult because the quality has also changed immensely (indoor plumbing, electricity, etc.). This blog goes over both those points. https://awealthofcommonsense.com/2021/03/what-if-housing-pri... tl;dr: 1. inflation adjusted mortgage payments are actually down 2. houses have gotten much…

Just wanted to correct that no.2 is irrelevant. Things being much better has only to do with technology and productivity.

If you had told me "Houses have gotten much better, but the cost to manufacture the things that make them much better remains the same" then you'd have a point.

I see this argument over and over. "You're so much better off than your parents, what are you complaining about?! For example in my time we couldn't even fly, and now with your "low wage" you can! Proof that the wage is not so bad!" Well BS argument. For example, now we don't fly in fully manually built airplanes, that were designed on paper, with hand calculators.

Re: Home Price to Income Ratio

#615

Post by elif »

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…

Why would you compute only one iteration of interest when a full term will result in 60-100% increase in price. One month is hardly even a freeze-frame.

Re: Home Price to Income Ratio

#616

Post by elif »

aidenn0 wrote: post #498
moosedev wrote: post #463

Earlier quoted context omitted.

30 year fixed rate is actually the “normal”/common mortgage in the US. I moved to the US from the UK, where mortgages look more like Australia’s, and I still find it amazing you can fix such a low rate for so long here.

The weird thing is that 5 year adjustable rates are higher then 30yr. fixed. That only makes sense if interest rates will go down over the next 5 years, which seems unlikely to me.

If you look at it from the bank's perspective it makes more sense. I got a 5 year and paid it off early. The bank got about 8% of my home value. My friend has a 30 year and the bank will get ~110% of his home value.

Re: Home Price to Income Ratio

#617

Post by snidane »

lottin wrote: post #599
fcsp wrote: post #358

Earlier quoted context omitted.

This is something that has been keeping me wondering for years. Since the financial crisis the European Central Bank has basically fixed base rate at negative (since 2012), leaving the market flooded with desperate investment money (due to all old school investment options becoming a negative) Now also of course since it's "cheap" the real estate prices have almost doubled in that timespan, having previously hovered…

In theory, a fall in nominal interest rates below the real rate of return of capital should spur investment, since entrepreneurs can borrow funds at a low rate to expand production capacity or start new businesses and obtain a higher rate of return. The reality is we don't see much investment going on, and at some point the ECB will have to face up to the fact that the low interest policy doesn't work.

Low ingerest rate resulting in economical growth is a dogma recognized across economic schools, which fails to materialize empirically. Look up Richard Werner on this.

The only growth that is observed is businesses which are serving the bubble. Eg. construction industry having a boom as well as cryptocurrency startups.

Re: Home Price to Income Ratio

#618

Post by tdfx »

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…

I would also add that there's nothing worse than being a landlord of a single unit/property. Pretty much all of the functions that you'll need to fulfill as a landlord take the same amount of time for 2-3+ units as they do for 1, except your potential returns are lower. Setting up a system to collect rent, managing repair requests and vendors, a tenant marketing/screening plan, extended vacancies, etc. are all much more painful to do for a single unit than for a collection of units. I see a lot of people throw the "just rent it out" line without considering any of this.

Re: Home Price to Income Ratio

#619

Post by bogomipz »

fshbbdssbbgdd wrote: post #541
bogomipz wrote: post #538

Earlier quoted context omitted.

No. 30 year mortgages and 10 year treasuries move in unison but they are not the same rate. You can see this on the first graph here: https://www.thebalance.com/treasury-note-and-mortgage-rate-r...

Treasuries are some of the lowest-yielding bonds out there.

Yes and treasures are the only bonds that move in lockstep with 30 year mortgages. When people talk about the correlation between bond yields and mortgages those are exactly the ones they are referring to.

US Treasuries also are considered among the safest, least risky assets out there. This is true globally and has been for a very, very long time.

This is all succinctly explained in the link I posted above.

Lastly bond prices have an inverse relationship with interest rates, which means that as interest rates rise, bond prices go down. So no, when rates go up to x+5 you will never be able to find bonds that pay x+5.

Re: Home Price to Income Ratio

#620

Post by wffurr »

Geee wrote: post #526
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.

What do you want to learn? Modern economics is mostly a guessing game of what actions governments and central banks implement. Will they print money and how much, will they bail out the banks or let them fall, will they lower or raise the interest rates, is there more stimulus coming, what kind of subsidies and social policies they implement etc. Some economists think that it's good that they have so much power and o…

...and what actual effect any of those actions has! That's the part that's mysterious to me and would be particularly interesting to learn.

And more to the point, what can or should I do on an individual level?

The OP was about home price to income ratio, and just like in one of the threads, I basically shopped based on monthly payment, not total price. I don't have any anchoring on the value of a particular structure or lot. Should I have made different choices?

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