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Comment by aschearer | Hacker News Reader

People are bringing up that past rates were higher but leaving out how much lower past prices were. Have a look at rates over time[1] vs median home price[2].

Yes rates were 16% in 1980 but the median home was $64,000. That's $230,000 in today's dollars.

If you'd prefer to pick a time when rates were more comparable, how about 2001 at 7%. The median home price was $180,000. $301,000 in today's dollars.

Today's median home is selling for $440,000. It's small wonder that people are upset.

[1]: https://fred.stlouisfed.org/series/MORTGAGE30US [2]: https://fred.stlouisfed.org/series/MSPUS

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Economists need to figure out how people are buying these expensive houses. I work in big tech and probably in 1-2% and I am still priced out of market even outside of CA. How do other people not in big tech do it? My guess is that most people buying houses are double-income families which wasn't the case in 1980s. Note to self: If you want Ameican dream, make sure you marry someone who makes as good income as you :).

I think the housing situation is causing a great deal of pain in the country right now. I see manifestations of it all around me. Collectively we seem unable to do anything but continue doing what we've always done -- bid higher.

A lot of people settle for small house or fixer uppers to get their foot in the door. Are you sure your wants are pricing you out of certain areas?

if you're in the top 1% of America in wealth or income and you can't afford a house outside of CA you're doing it wrong. very wrong.

I guess it depends on your standards but to say you’re priced out everywhere with no context is a wild exaggeration if you’re in the top 5% of earners.

a $1M house or condo bought at 3% rates would have been under $5k all in a month. I’m fairly certain a single person with mid six figure income could easily afford that. It’s now around $6k which should also be doable.

If your family owned real estate in 1980, then odds are good that generational wealth provides the needed liquidity. As has been discussed elsewhere in this thread, the monthly payments haven't changed much as a function of income - it's only the nominal price and the associated down payment that's changed over time.

Yeah, people price housing in terms of the monthly payment, not the dollar amount so much... higher interest rates mean people can afford less principal. And mortgage rates have doubled in less than a year.

(of course, in practice, once they've bought, people tend to be averse to their "investment" losing 20% or 30%, even if they did lock in a good interest rate they'll be paying for years to make up the fall. this has always been one of the giant gotchas with keeping interest rates so eternally low... also the cost of financing the national debt just zoomed up too.)

Wouldn't you agree the dollar amount plus the interest rate broadly determine the monthly payment? So we can compare a 2001 home at $300,000 for 7% vs a 2020 home at $440,000. Someone buying a home today will pay more month to month for a median home.

You need to account for inflation. Dollar value in 2001 and 2022 is not the same. CPI today is ~295 vs ~175 in 2001, so while nominally today's monthly payment is higher, it is not higher in terms of its purchasing power.

I adjusted for inflation in my numbers above. The median 2001 home cost $180,000 in 2001 dollars. $300,000 in today's dollars. Someone who could purchase a median home in 2001 cannot purchase a median home in 2020 without increasing their monthly cost. Using Google's mortgage calculator and punching in those numbers at 7%:

$1,996 / month in 2001 vs $2,972 / month in 2022

That's in today's dollars, accounting for inflation. Almost 50% more. Feel free to point out an error in my math.

Didn't know you already inflation-adjusted your numbers. So I looked up the prices, mortgage rates and CPI in 2001 and 2022. I think your math is correct.

> of course, in practice, once they've bought, people tend to be averse to their "investment" losing 20% or 30%, even if they did lock in a good interest rate they'll be paying for years to make up the fall.

This is not entirely irrational. The median length of hone ownership is about 13 years. With stable value and interest rates, this is not a big issue. People can role their equity into their next home and just pay the transaction cost of selling. With rising rates and falling prices, you would also need to realize the loss, and give up on the counteracting benefit of a low rate.

The net effect of this is to make people more reluctant to move than they otherwise would be.

> Today's median home is selling for $440,000

Not for long.

This. You want to cut the heart of inflation jack up rates. Deeply unpleasant for everyone but it'll work.

Hasn't square footage also trended up? That's why you use something like the Case-Shiller index to chart housing prices. I know those components go into it and perhaps others.

OK here's the Case-Sheller index[1].

Running the examples from before:

1980: 63 (actually for 1987, earliest in the chart)

2001: 110

2022: 305

I'm no economist so I won't try to interpret these numbers, but if higher is worse then it supports my original point.

[1]: https://fred.stlouisfed.org/series/CSUSHPISA

Yep, I'm not disagreeing with your original point, just pointing out that these comparisons have a few variables to consider. At least someone already went to the trouble of creating an index for it.

It's true that modern homes may differ from those of the 1980s or 2001, but homes built from those periods are still for sale, and in my experience are commanding prices in line with homes built more recently. I recently toured a home built around the 70s or 80s with few or no updates as best as I could tell. They wanted $550,000. The house was pending last I checked.

That post-pandemic bubble is pretty insane. I didn't realize it went up that quickly.

Everyone better buckle up.

Inflation at work.

Home prices have gone up faster than the dollar has inflated, as I outlined above.

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