4 ms·

Am I reading that chart right that the average person with a mortgage pays around 15% of their income for housing? That seems implausibly low.

sokoloff 7y ago
It might be a hair more than 15% by eyeball, but remember that’s going to include in the average a lot of people who are paying property taxes only or who bought a place 15-20+ years ago and whose PIT payments are much lower than their current income would suggest they could qualify for. I bought in 2007 and my percent of income spent on housing would now fall in-line with the charted figures.
evancox100 7y ago
Do you live in Silicon Valley? That might skew your perception a bit. Median income is around $60k, and median house price is $220k. With a couple assumptions that comes out to around 20%
- mikeash 7y ago
  I do not. 20% is more plausible. The gap between 15% and 20% is high.
  - kgwgk 7y ago
    Note that most people currently paying a mortgage has not bought at current prices. And with the reasonable assumption that high-income households are more likely than low-income households to buy a house in any given year, we can expect the buyer of the median house to have better-than-median income.
    - mikeash 7y ago
      It makes more sense when you put it like that. The average mortgage holder has a 2019 salary but probably only a 2010 mortgage. (Or whatever bygone year is correct.)
rayiner 7y ago
Houses are fairly cheap in the US and incomes are fairly high: https://www.nytimes.com/2017/04/21/realestate/first-time-home-buyers-statistics.html https://www.nytimes.com/2017/04/21/realestate/first-time-hom.... > Of those who did manage to buy, the median age was 32; median salary, $72,000; and median home price, $182,500. (Among all buyers, the median age was 44; median income was $88,500; and median home price was $227,700.) Assuming no down payment, a mortgage of 182,000 at 4.5% is $920 per month, which is just about 15% of $72,000 (before tax). It’s about 19% after tax. Still quite affordable.
- almostdeadguy 7y ago
  The first set of numbers are of first-time buyers who managed to buy. That doesn't really speak to housing being affordable, it speaks to what circumstances people must be in before they feel comfortable buying. Median personal income is about half that [1]. [1]: https://fred.stlouisfed.org/series/MEPAINUSA672N https://fred.stlouisfed.org/series/MEPAINUSA672N
  - rayiner 7y ago
    I don’t think the median individual income is the right reference point for mortgage affordability. Do we think that single people who just graduated high school should be able to buy a house in order for housing to be considered “affordable?” If not, it might be appropriate to compare median housing prices to median incomes of groups we expect to be able to buy houses. Median income for family households was $77,000 in 2016: https://www.census.gov/library/publications/2018/demo/p60-263.html https://www.census.gov/library/publications/2018/demo/p60-26.... Median income for married couples with both spouses working is $111,000: http://www.aei.org/wp-content/uploads/2018/09/census3.png http://www.aei.org/wp-content/uploads/2018/09/census3.png.
    - Retric 7y ago
      Single people that just graduated high school used to be able to afford to buy a house. In some parts of the US they still can. Part of the change is we stopped building cheap houses. Building a good 600sf house for 20-25k is very possible. Land costs are also an issue in some areas, but much like the car market people build based on who’s buying not the low end of the market. The profit margin is vastly better if you aim upscale.

sokoloff 7y ago

It might be a hair more than 15% by eyeball, but remember that’s going to include in the average a lot of people who are paying property taxes only or who bought a place 15-20+ years ago and whose PIT payments are much lower than their current income would suggest they could qualify for. I bought in 2007 and my percent of income spent on housing would now fall in-line with the charted figures.

evancox100 7y ago

Do you live in Silicon Valley? That might skew your perception a bit. Median income is around $60k, and median house price is $220k. With a couple assumptions that comes out to around 20%

mikeash 7y ago
I do not. 20% is more plausible. The gap between 15% and 20% is high.
- kgwgk 7y ago
  Note that most people currently paying a mortgage has not bought at current prices. And with the reasonable assumption that high-income households are more likely than low-income households to buy a house in any given year, we can expect the buyer of the median house to have better-than-median income.
  - mikeash 7y ago
    It makes more sense when you put it like that. The average mortgage holder has a 2019 salary but probably only a 2010 mortgage. (Or whatever bygone year is correct.)

rayiner 7y ago

Houses are fairly cheap in the US and incomes are fairly high: https://www.nytimes.com/2017/04/21/realestate/first-time-home-buyers-statistics.html https://www.nytimes.com/2017/04/21/realestate/first-time-hom.... > Of those who did manage to buy, the median age was 32; median salary, $72,000; and median home price, $182,500. (Among all buyers, the median age was 44; median income was $88,500; and median home price was $227,700.) Assuming no down payment, a mortgage of 182,000 at 4.5% is $920 per month, which is just about 15% of $72,000 (before tax). It’s about 19% after tax. Still quite affordable.

almostdeadguy 7y ago
The first set of numbers are of first-time buyers who managed to buy. That doesn't really speak to housing being affordable, it speaks to what circumstances people must be in before they feel comfortable buying. Median personal income is about half that [1]. [1]: https://fred.stlouisfed.org/series/MEPAINUSA672N https://fred.stlouisfed.org/series/MEPAINUSA672N
- rayiner 7y ago
  I don’t think the median individual income is the right reference point for mortgage affordability. Do we think that single people who just graduated high school should be able to buy a house in order for housing to be considered “affordable?” If not, it might be appropriate to compare median housing prices to median incomes of groups we expect to be able to buy houses. Median income for family households was $77,000 in 2016: https://www.census.gov/library/publications/2018/demo/p60-263.html https://www.census.gov/library/publications/2018/demo/p60-26.... Median income for married couples with both spouses working is $111,000: http://www.aei.org/wp-content/uploads/2018/09/census3.png http://www.aei.org/wp-content/uploads/2018/09/census3.png.
  - Retric 7y ago
    Single people that just graduated high school used to be able to afford to buy a house. In some parts of the US they still can. Part of the change is we stopped building cheap houses. Building a good 600sf house for 20-25k is very possible. Land costs are also an issue in some areas, but much like the car market people build based on who’s buying not the low end of the market. The profit margin is vastly better if you aim upscale.