Hacker News Reader

Comment by useful | Hacker News Reader

Home prices are a function of monthly costs. As much as people want to compare the value of a home from year to year, in every instance, I've seen values reflect to monthly spending power.

I would love to see some estimate that takes more into account like household income, tax breaks, and interest rates. If I have a interest deduction, my relative taxes are lower. If I have children, my taxes are lower. If I have historic property, my taxes are lower. If I have solar, my monthly bill is lower. All these things make owning a home easier and allows people to buy more home.

Education is another example, prices largely mirror federal subsidized loan values. I'm not arguing that government should get out of housing, people should realize that the value of something is relative to the demand especially when the supply is largely fixed or has linear growth.

View on HN

I agree with your comment, and just want to add that interest rate changes alone can explain a lot of the appreciation.

If you have the exact same income and rates are at today's 3% vs 2008's 6%, the payments on a $1.0MM home mortgage would be $4.2K vs $6.0k. The difference between those two payments is about $40k/year of gross income difference.

A person in 2021 with the exact same income as 2008 would be paying the same for a $1.4M mortgage per month as the person in 2008 at a $1.0M mortgage.

I don't own a home, so I'm not saying this to justify my purchase, but if I just take the info in the graph, I actually wonder whether there is a lot more room to go in the market. I wonder if we are looking at another 20-30% appreciation before the top?

I have no idea.

https://fred.stlouisfed.org/series/MORTGAGE30US

I don't have all of the math for all the scenarios you describe, but still, overall you're completely correct.

If you account for inflation and interest rates, and look at median home price, a home earlier this year was CHEAPER than home in 2005. Roughly the same monthly payments before accounting for inflation, because of the interest rates (6.X% vs 2.5-2.8%ish). That alone makes a huge difference.

People are also becoming more financially literate. Once folks are able to crunch all of the numbers on their own, start calculating how much rent costs, how much money they will make from asset valuation, how much they can save from using HELOCs instead of credit or other types of loans, they're willing to spend more, too. There's the tax deductions, but that got gutted, so it's not that big anymore.

one can say the down payment increases, but it increased slower than the market did, so if you just sat on investments since 2005, you can make a BIGGER down payment now than then, proportionally. At current interest rates, even with PMI, you're potentially better off doing a 3% + PMI than putting a large down payment (unless you're expecting a market apocalypse the likes of which the US has never seen).

We could crank up the interest rates to 10% and home values would tank. It wouldn't reduce monthly home costs any though.

Reply on news.ycombinator.com