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Even if the majority of people choose the max they can afford, it doesn't follow that individuals can't freely choose cheaper houses for themselves.

nly 8y ago
Individual action doesn't matter. If you're only willing to spend 30% of your take home pay on rent, whereas your sociodemographic twin is willing to pay 50%, they'll outbid you. Incidentally I currently spend 47% of my take-home on rent in London. At 32, buying a property is still out of my reach. There are statistics on this in this related BBC article https://www.bbc.co.uk/news/business-42179119 https://www.bbc.co.uk/news/business-42179119
- malvosenior 8y ago
  I don’t think they’ll outbid you, they’ll buy a more expensive house.
  - mamon 8y ago
    And you think you'll be able to find a cheaper house? No, sorry: sellers will raise their asking price to match (or exceed) the market average. So, your choice really is between paying the same price as everybody else or not buy a house at all.
    - malvosenior 8y ago
      Every house does not cost the same amount. Yes, the average price might go up, but in my experience people will buy the biggest house they can afford instead of over bidding on a smaller house (in most markets).
  - tonyedgecombe 8y ago
    They will when supply is constrained.
    - malvosenior 8y ago
      I think this is a minority of real estate markets (mainly SF and Vancouver). Even in NY there's enough of a spread that someone making 250k a year will have the option of buying a house under their max buying potential.
    - AnthonyMouse 8y ago
      > They will when supply is constrained. The point of the article is supposed to be that the issue isn't supply constraints. If interest rates only raise prices significantly when supply can't respond to higher demand, how is the problem interest rates rather than supply constraints?
  - deleted 8y ago
    [deleted]
phkahler 8y ago
>> Even if the majority of people choose the max they can afford, it doesn't follow that individuals can't freely choose cheaper houses for themselves. The entire market is affected by this. You might spend less on a house, but the price of that house has already been influenced by the overall market. Homes in that price range are still at the maximum for people in some income range.
- travisoneill1 8y ago
  Correct. You will get less house for your money than you would if houses were not in high demand. Same as the price of everything else works. And if other people want to spend more than you on houses why shouldn't they?
  - simonh 8y ago
    Nobody is saying they shouldn’t, I have done exactly this, buying a house by taking the maximum mortgage I could afford to get the nices house I could get. We are just discussing the mechanism and forces at play and the role of interest rates.
  - astura 8y ago
    Nobody said they shouldn't, we are discussing how interest rates effect the housing market as a whole.

nly 8y ago

Individual action doesn't matter. If you're only willing to spend 30% of your take home pay on rent, whereas your sociodemographic twin is willing to pay 50%, they'll outbid you. Incidentally I currently spend 47% of my take-home on rent in London. At 32, buying a property is still out of my reach. There are statistics on this in this related BBC article https://www.bbc.co.uk/news/business-42179119 https://www.bbc.co.uk/news/business-42179119

malvosenior 8y ago
I don’t think they’ll outbid you, they’ll buy a more expensive house.
- mamon 8y ago
  And you think you'll be able to find a cheaper house? No, sorry: sellers will raise their asking price to match (or exceed) the market average. So, your choice really is between paying the same price as everybody else or not buy a house at all.
  - malvosenior 8y ago
    Every house does not cost the same amount. Yes, the average price might go up, but in my experience people will buy the biggest house they can afford instead of over bidding on a smaller house (in most markets).
- tonyedgecombe 8y ago
  They will when supply is constrained.
  - malvosenior 8y ago
    I think this is a minority of real estate markets (mainly SF and Vancouver). Even in NY there's enough of a spread that someone making 250k a year will have the option of buying a house under their max buying potential.
  - AnthonyMouse 8y ago
    > They will when supply is constrained. The point of the article is supposed to be that the issue isn't supply constraints. If interest rates only raise prices significantly when supply can't respond to higher demand, how is the problem interest rates rather than supply constraints?
- deleted 8y ago
  [deleted]

phkahler 8y ago

>> Even if the majority of people choose the max they can afford, it doesn't follow that individuals can't freely choose cheaper houses for themselves. The entire market is affected by this. You might spend less on a house, but the price of that house has already been influenced by the overall market. Homes in that price range are still at the maximum for people in some income range.

travisoneill1 8y ago
Correct. You will get less house for your money than you would if houses were not in high demand. Same as the price of everything else works. And if other people want to spend more than you on houses why shouldn't they?
- simonh 8y ago
  Nobody is saying they shouldn’t, I have done exactly this, buying a house by taking the maximum mortgage I could afford to get the nices house I could get. We are just discussing the mechanism and forces at play and the role of interest rates.
- astura 8y ago
  Nobody said they shouldn't, we are discussing how interest rates effect the housing market as a whole.