17 ms·

They've doubled in price, but cost per square foot is broadly stable [1], rates are substantially lower than they were 2 decades ago, and sub-20% down loans are

by cheald 8y ago

They've doubled in price, but cost per square foot is broadly stable [1], rates are substantially lower than they were 2 decades ago, and sub-20% down loans are much more common than they once were. A $150k loan in 1999 at 7.6% would cost you $1,059/mo in mortgage payment. A $300k loan at 4% today will cost you $1,432/mo - a 35% increase over the original price, not the 100% you'd expect. Meanwhile, you aren't paying 2x per square foot - you're getting roughly twice as much house as you did before for that price, for only a 35% increase in payment! [1] This is a smallish dataset, but the trend holds outside of the pre-2008 runup. I don't have that data immediately on hand, though. https://www.clevelandfed.org/newsroom-and-events/publications/economic-trends/2012-economic-trends/et-20120119-trends-in-housing-prices-per-square-foot.aspx https://www.clevelandfed.org/newsroom-and-events/publication...

jacobolus 8y ago
Zoning / development incentives in many places is such that houses of the size typical decades ago can no longer be built. Having twice a big a house doesn’t help if you can’t afford the 35% price increase.
- TaylorAlexander 8y ago
  I see. The poster above says value has gone up, but that says nothing of the floor in prices, which is also rising even if at a different rate. The end result can still mean more people priced out of the area and harder times for those in it.
- HarryHirsch 8y ago
  It's a massive problem. New construction is bigger, so you get to pay extra for heating, cooling and cleaning, and you also have the extra commute because it's located out of town, across the highway, to keep the rabble out. You can't have reasonable size and a short way to work because the urban school district is too run down.
- masonic 8y ago
  houses of the size typical decades ago can no longer be built Where is it illegal to build houses below a given minimum size?
  - jacobolus 8y ago
    Most places have some combination of minimum dwelling sizes, minimum lot sizes, minimum parking requirements, height limits, limits on number of units per lot, etc. When you add over-wide roads laid out in pedestrian-hostile patterns, additional zoning restrictions on commercial buildings, etc., the end result in many places developed in the past few decades (including almost every recently developed neighborhood in the USA) is to depress density, increase per-unit housing prices, force most residents to travel by car, etc. * * * Edit: your other comments indicate you live in San Jose. It seems that minimum home size is not regulated there, but there are many other exclusionary features of San Jose zoning. https://www.spur.org/sites/default/files/publications_pdfs/SPUR_Room_for_More.pdf https://www.spur.org/sites/default/files/publications_pdfs/S...
    - masonic 8y ago
      Repeating the question: Where is it illegal to build houses below a given minimum size? Can't you name any off the top of your head without throwing up other criteria as chaff?
      - deleted 8y ago
        [deleted]
      - jacobolus 8y ago
        I’m tempted to tell you to take your hostile insulting response and shove it. WTF? Most municipalities in the US has some kind of minimum dwelling size, sometimes varying by zone. They can be anywhere from a few hundred square feet to about a thousand square feet (or occasionally bigger). Like other local laws, they vary widely in the details. You can check local municipal zoning codes for whatever specific community you are interested in. San Jose is one of the rare places which apparently does not have such a rule. Though sometimes building codes enforce minimum sizes when zoning laws per se do not – I don’t care enough to go read through the San Jose building codes. For more general discussion, if you do a web search for “minimum house size” you will get millions of results.
- tsukikage 8y ago
  Clearly someone is buying these houses, otherwise the market would readjust for the oversupply and the prices would drop. So if we have people that can't buy houses, but all houses that do get built get bought, the problem has to be that we are not building enough houses.
robertAngst 8y ago
Glad we have a reasonable person here. Ive done the math for Food as well, the prices arent 'going up' like people claim. The only thing that has went up, is inflation.
- hsitz 8y ago
  ??? Food is not an appreciating asset. An increase in food prices, as part of the CPI, is by definition, inflation. Home prices, in contrast, have for a long time risen much faster than inflation, at least in many areas.
  - cheald 8y ago
    Housing costs are included in the CPI, as well. In fact, they are about 40% of the total CPI weighting.
deleted 8y ago
[deleted]
eli_gottlieb 8y ago
>A $150k loan in 1999 at 7.6% would cost you $1,059/mo in mortgage payment. A $300k loan at 4% today will cost you $1,432/mo - a 35% increase over the original price, not the 100% you'd expect. Meanwhile, you aren't paying 2x per square foot - you're getting roughly twice as much house as you did before for that price, for only a 35% increase in payment! But I don't want twice the floor space in an exurb. I want a modest apartment or condo near transit.
- Spooky23 8y ago
  So does everyone else. Supply, meet demand. If you don’t want to pay a premium, buy something with lower demand.
  - eli_gottlieb 8y ago
    That's not quite true. Most people don't want to live directly in the urban core (though I do), and the supply of housing in both the urban core and inner-ring suburbs is artificially restricted. Hence all the talk of "missing middle" housing (ie: https://www.vox.com/policy-and-politics/2018/9/24/17896482/building-more-stuff-housing-gentrification-cities https://www.vox.com/policy-and-politics/2018/9/24/17896482/b...).
    - Spooky23 8y ago
      The trend is that many professional people want to live in the urban core, because they are delaying having kids mostly. Missing middle housing is all about the disruption of the boom/bust cycle of housing and long time erosion of middle class earnings, plus a decreased supply of tradespeople that has ballooned up skilled and semi-skilled labor. We have a glut of mediocre college educated people and a shortage of people who do things -- my brother in law is an electrician, his billing rate is up to $150/hr, and he has a 6 week backlog of work. It's not economical to build a house anymore like it was in the mid-90s -- even if you own the land. We're being flooded with medium density, carve-out rental housing developments because you need that scale to make money, mostly through trading of tax expenses. Those developments suck because they don't integrate with the street grid, waste space and are universally low quality buildings. When you pass the 15-year mark and interest/tax write downs go away, they will naturally turn into low-income as the landlords profitability melts away. Around that point, these developments flip over to a succession of shittier operators.
sbov 8y ago
Your calculations ignore property taxes and any other tax based upon the value of your house. Your rates also seem off. http://www.freddiemac.com/pmms/pmms30.html http://www.freddiemac.com/pmms/pmms30.html claims the average rate in 1999 was 7.44% and in 2018 it was 4.54%. The fed also just raised their rates in December and plan to do more raising in 2019 so expect these numbers to rise. Beyond that, it doesn't matter if the price per square foot is the same if they aren't building smaller houses. Points like this is like tricks we pull to keep inflation down. All that matters is how expensive is a house that can put a roof over the head of the number of people I need to. We have 3 kids and we were looking for 4 bedrooms. Newer ones in our area are massive 3,000+ square foot structures we can't afford. So we're stuck in a 50 year old 1900 square foot house that we can afford. With a 50 year old house comes all sorts of annoyances such as asbestos, lead paint, and orangeburg pipes.
- skookumchuck 8y ago
  > We have 3 kids and we were looking for 4 bedrooms My family was short on bedrooms growing up, so we doubled up. Nothing wrong with that.
  - deleted 8y ago
    [deleted]
  - matthewmacleod 8y ago
    Me too, but it’s definitely a compromise, especially as the kids get older. I’d rather have a slightly lower-quality property than shared bedrooms unless the situation makes that infeasible.
    - cheald 8y ago
      It's certainly preferable to not have to double up bedrooms, but we have to remember that our parents did it just fine. I grew up in a family of 6 in a 1600 sq ft house. It worked just fine, but we'd look at that today and consider it unacceptably cramped. Demand for space per occupant has risen. It doesn't make sense to expect our parents' price tags when we're demanding larger properties.
stillbourne 8y ago
I make $70k a year, I have a credit score of 814 the bank won't give me a loan for more than $175k. The cheapest housing in my metro area is about $300k. It doesn't matter that a the cost per ft^2 is stable or that a $300k loan is @ 4% when I can't get a $300k loan.
- Spooky23 8y ago
  Don’t go to the bank go to a broker. You can get a (not so great deal) loan with much higher limits.
- cheald 8y ago
  That suggests to me that your existing debt-to-income ratio is too high. The conventional limit lenders will consider is a 36% pre-tax debt-to-income, including mortgage obligations. If a lender won't consider more than $175k, that suggests you probably have substantial existing debt obligations. If you don't, ask around to find another lender. Realtors generally have brokers they work with and recommend.
  - stillbourne 8y ago
    I don't know how to make the calculation that you are describing.
    - cheald 8y ago
      Add up all your monthly debt service obligations (credit cards, student loans, car payment, etc - use the minimum payment). This is your current debt obligation. Your pretax monthly income is $5833. 36% of that is $2100. The maximum a lender will loan you will result in a monthly payment of ($2100 - your current debt obligation). For example, if you have $1k/mo in debt service, you have $1100 margin left in your debt-to-income ratio for a mortgage. At 4%, that's a maximum mortgage amount of roughly $145k. If you have all $2100 to allocate to the mortgage, that allows a mortgage in the $300k range, varying with property tax and insurance rates. https://www.bankrate.com/calculators/mortgages/new-house-calculator.aspx https://www.bankrate.com/calculators/mortgages/new-house-cal... is a handy tool for figuring out how much mortgage you can afford. https://usmortgagecalculator.org/ https://usmortgagecalculator.org/ is another good resource.
_dps 8y ago
> but cost per square foot is broadly stable I've looked at this data before and you are correct, but something sits uneasily for me. I think the thing everyone feels as "everything is more expensive" is that cost per square foot anywhere near an economic nexus has exploded since the 80s. The aggregate numbers that make the cost appear stable include tons of expansion in commuter zones. My parents were successful professionals, as is my family now. But I know what my parents paid for a 2000 sqft house 10 minutes near an economic hub and a top 20 university in 1985 and that was easily affordable on just one of their incomes. My family now faces a situation where to buy something equivalent in terms of size+centrality both incomes are required.
- cheald 8y ago
  Absolutely. I think there are a number of factors here, but the most trivial is population growth - we're +90m people in the US since 1985 and we've seen a percentage shift of the total population to the major urban centers - and the simple fact that competition for prime locations increases as a result. Everyone wants to live in a prime central location with plenty of space and good schools. Who wouldn't? It's a naive reading, but that phenomenon feels very much like a simple econ 101 supply constraint. I'd be very interested in some further reading on it if you're aware of any though.
  - _dps 8y ago
    I agree with your analysis that it's increased competition for prime locations, but that seems to me purely descriptive. It's not a surprise, but it's still a problem :) And it's a problem that is masked by aggregate measures showing stable cost per square foot because those numbers are not "prime-locale" adjusted. To be somewhat more precise, what we commonly describe as "buy a house" is actually much more than that. I can buy an amazing house-shaped structure in rural Wyoming for $200k. What I can't buy for that price is a stake in an environment where I want to base my career and family life for decades. The latter is what is crushing millennials.
    - cheald 8y ago

by cheald 8y ago

jacobolus 8y ago

Zoning / development incentives in many places is such that houses of the size typical decades ago can no longer be built. Having twice a big a house doesn’t help if you can’t afford the 35% price increase.

TaylorAlexander 8y ago
I see. The poster above says value has gone up, but that says nothing of the floor in prices, which is also rising even if at a different rate. The end result can still mean more people priced out of the area and harder times for those in it.
HarryHirsch 8y ago
It's a massive problem. New construction is bigger, so you get to pay extra for heating, cooling and cleaning, and you also have the extra commute because it's located out of town, across the highway, to keep the rabble out. You can't have reasonable size and a short way to work because the urban school district is too run down.
masonic 8y ago
houses of the size typical decades ago can no longer be built Where is it illegal to build houses below a given minimum size?
- jacobolus 8y ago
  Most places have some combination of minimum dwelling sizes, minimum lot sizes, minimum parking requirements, height limits, limits on number of units per lot, etc. When you add over-wide roads laid out in pedestrian-hostile patterns, additional zoning restrictions on commercial buildings, etc., the end result in many places developed in the past few decades (including almost every recently developed neighborhood in the USA) is to depress density, increase per-unit housing prices, force most residents to travel by car, etc. * * * Edit: your other comments indicate you live in San Jose. It seems that minimum home size is not regulated there, but there are many other exclusionary features of San Jose zoning. https://www.spur.org/sites/default/files/publications_pdfs/SPUR_Room_for_More.pdf https://www.spur.org/sites/default/files/publications_pdfs/S...
  - masonic 8y ago
    Repeating the question: Where is it illegal to build houses below a given minimum size? Can't you name any off the top of your head without throwing up other criteria as chaff?
    - deleted 8y ago
      [deleted]
    - jacobolus 8y ago
      I’m tempted to tell you to take your hostile insulting response and shove it. WTF? Most municipalities in the US has some kind of minimum dwelling size, sometimes varying by zone. They can be anywhere from a few hundred square feet to about a thousand square feet (or occasionally bigger). Like other local laws, they vary widely in the details. You can check local municipal zoning codes for whatever specific community you are interested in. San Jose is one of the rare places which apparently does not have such a rule. Though sometimes building codes enforce minimum sizes when zoning laws per se do not – I don’t care enough to go read through the San Jose building codes. For more general discussion, if you do a web search for “minimum house size” you will get millions of results.
tsukikage 8y ago
Clearly someone is buying these houses, otherwise the market would readjust for the oversupply and the prices would drop. So if we have people that can't buy houses, but all houses that do get built get bought, the problem has to be that we are not building enough houses.

robertAngst 8y ago

Glad we have a reasonable person here. Ive done the math for Food as well, the prices arent 'going up' like people claim. The only thing that has went up, is inflation.

hsitz 8y ago
??? Food is not an appreciating asset. An increase in food prices, as part of the CPI, is by definition, inflation. Home prices, in contrast, have for a long time risen much faster than inflation, at least in many areas.
- cheald 8y ago
  Housing costs are included in the CPI, as well. In fact, they are about 40% of the total CPI weighting.

deleted 8y ago

[deleted]

eli_gottlieb 8y ago

>A $150k loan in 1999 at 7.6% would cost you $1,059/mo in mortgage payment. A $300k loan at 4% today will cost you $1,432/mo - a 35% increase over the original price, not the 100% you'd expect. Meanwhile, you aren't paying 2x per square foot - you're getting roughly twice as much house as you did before for that price, for only a 35% increase in payment! But I don't want twice the floor space in an exurb. I want a modest apartment or condo near transit.

Spooky23 8y ago
So does everyone else. Supply, meet demand. If you don’t want to pay a premium, buy something with lower demand.
- eli_gottlieb 8y ago
  That's not quite true. Most people don't want to live directly in the urban core (though I do), and the supply of housing in both the urban core and inner-ring suburbs is artificially restricted. Hence all the talk of "missing middle" housing (ie: https://www.vox.com/policy-and-politics/2018/9/24/17896482/building-more-stuff-housing-gentrification-cities https://www.vox.com/policy-and-politics/2018/9/24/17896482/b...).
  - Spooky23 8y ago
    The trend is that many professional people want to live in the urban core, because they are delaying having kids mostly. Missing middle housing is all about the disruption of the boom/bust cycle of housing and long time erosion of middle class earnings, plus a decreased supply of tradespeople that has ballooned up skilled and semi-skilled labor. We have a glut of mediocre college educated people and a shortage of people who do things -- my brother in law is an electrician, his billing rate is up to $150/hr, and he has a 6 week backlog of work. It's not economical to build a house anymore like it was in the mid-90s -- even if you own the land. We're being flooded with medium density, carve-out rental housing developments because you need that scale to make money, mostly through trading of tax expenses. Those developments suck because they don't integrate with the street grid, waste space and are universally low quality buildings. When you pass the 15-year mark and interest/tax write downs go away, they will naturally turn into low-income as the landlords profitability melts away. Around that point, these developments flip over to a succession of shittier operators.

sbov 8y ago

Your calculations ignore property taxes and any other tax based upon the value of your house. Your rates also seem off. http://www.freddiemac.com/pmms/pmms30.html http://www.freddiemac.com/pmms/pmms30.html claims the average rate in 1999 was 7.44% and in 2018 it was 4.54%. The fed also just raised their rates in December and plan to do more raising in 2019 so expect these numbers to rise. Beyond that, it doesn't matter if the price per square foot is the same if they aren't building smaller houses. Points like this is like tricks we pull to keep inflation down. All that matters is how expensive is a house that can put a roof over the head of the number of people I need to. We have 3 kids and we were looking for 4 bedrooms. Newer ones in our area are massive 3,000+ square foot structures we can't afford. So we're stuck in a 50 year old 1900 square foot house that we can afford. With a 50 year old house comes all sorts of annoyances such as asbestos, lead paint, and orangeburg pipes.

skookumchuck 8y ago
> We have 3 kids and we were looking for 4 bedrooms My family was short on bedrooms growing up, so we doubled up. Nothing wrong with that.
- deleted 8y ago
  [deleted]
- matthewmacleod 8y ago
  Me too, but it’s definitely a compromise, especially as the kids get older. I’d rather have a slightly lower-quality property than shared bedrooms unless the situation makes that infeasible.
  - cheald 8y ago
    It's certainly preferable to not have to double up bedrooms, but we have to remember that our parents did it just fine. I grew up in a family of 6 in a 1600 sq ft house. It worked just fine, but we'd look at that today and consider it unacceptably cramped. Demand for space per occupant has risen. It doesn't make sense to expect our parents' price tags when we're demanding larger properties.

stillbourne 8y ago

I make $70k a year, I have a credit score of 814 the bank won't give me a loan for more than $175k. The cheapest housing in my metro area is about $300k. It doesn't matter that a the cost per ft^2 is stable or that a $300k loan is @ 4% when I can't get a $300k loan.

Spooky23 8y ago
Don’t go to the bank go to a broker. You can get a (not so great deal) loan with much higher limits.
cheald 8y ago
That suggests to me that your existing debt-to-income ratio is too high. The conventional limit lenders will consider is a 36% pre-tax debt-to-income, including mortgage obligations. If a lender won't consider more than $175k, that suggests you probably have substantial existing debt obligations. If you don't, ask around to find another lender. Realtors generally have brokers they work with and recommend.
- stillbourne 8y ago
  I don't know how to make the calculation that you are describing.
  - cheald 8y ago
    Add up all your monthly debt service obligations (credit cards, student loans, car payment, etc - use the minimum payment). This is your current debt obligation. Your pretax monthly income is $5833. 36% of that is $2100. The maximum a lender will loan you will result in a monthly payment of ($2100 - your current debt obligation). For example, if you have $1k/mo in debt service, you have $1100 margin left in your debt-to-income ratio for a mortgage. At 4%, that's a maximum mortgage amount of roughly $145k. If you have all $2100 to allocate to the mortgage, that allows a mortgage in the $300k range, varying with property tax and insurance rates. https://www.bankrate.com/calculators/mortgages/new-house-calculator.aspx https://www.bankrate.com/calculators/mortgages/new-house-cal... is a handy tool for figuring out how much mortgage you can afford. https://usmortgagecalculator.org/ https://usmortgagecalculator.org/ is another good resource.

_dps 8y ago

> but cost per square foot is broadly stable I've looked at this data before and you are correct, but something sits uneasily for me. I think the thing everyone feels as "everything is more expensive" is that cost per square foot anywhere near an economic nexus has exploded since the 80s. The aggregate numbers that make the cost appear stable include tons of expansion in commuter zones. My parents were successful professionals, as is my family now. But I know what my parents paid for a 2000 sqft house 10 minutes near an economic hub and a top 20 university in 1985 and that was easily affordable on just one of their incomes. My family now faces a situation where to buy something equivalent in terms of size+centrality both incomes are required.

cheald 8y ago
Absolutely. I think there are a number of factors here, but the most trivial is population growth - we're +90m people in the US since 1985 and we've seen a percentage shift of the total population to the major urban centers - and the simple fact that competition for prime locations increases as a result. Everyone wants to live in a prime central location with plenty of space and good schools. Who wouldn't? It's a naive reading, but that phenomenon feels very much like a simple econ 101 supply constraint. I'd be very interested in some further reading on it if you're aware of any though.
- _dps 8y ago
  I agree with your analysis that it's increased competition for prime locations, but that seems to me purely descriptive. It's not a surprise, but it's still a problem :) And it's a problem that is masked by aggregate measures showing stable cost per square foot because those numbers are not "prime-locale" adjusted. To be somewhat more precise, what we commonly describe as "buy a house" is actually much more than that. I can buy an amazing house-shaped structure in rural Wyoming for $200k. What I can't buy for that price is a stake in an environment where I want to base my career and family life for decades. The latter is what is crushing millennials.
  - cheald 8y ago