13 ms·
Home Price-to-Income Ratios
- starpilot 7y agohttps://en.wikipedia.org/wiki/Matthew_effect https://en.wikipedia.org/wiki/Matthew_effect
- swiley 7y agoYes but we also artificially make it worse with the way we build and sell housing.
- ianmobbs 7y agoI wonder if this is due to stagnant wages, excessive home price inflation, or both.
- vonmoltke 7y agoThey're comparing the median price houses sold for with the overall median income for the area. It may be the case, in some areas, that people below the median income are renting rather than buying, or staying in already-purchased houses as the real estate market heats up. Seeing the ratio of median house price to median home buyer's income would be interesting.
- thundergolfer 7y agoThis is also interesting though, isn't it? If more and more below-median-income people are renting because they can't afford to buy, that's definitely important and interesting.
- vonmoltke 7y agoYes, but not in isolation.
- RugnirViking 7y agoA bit of both, and also a sprinkle of the interest rates going from almost 20% at points in the 80s, to essentially 0% today, meaning people can afford to borrow a lot more at once, and home sellers profiteering off this.
- fiter 7y agoJust to give an example: a 30 year mortgage for $300,000 at 4% is about $1400 per month where a 30 year mortgage for $100,000 at 17% is about $1400 per month. That can explain a 3x multiplier in the home price to income ratio assuming that people purchase based on what they can afford monthly.
- ianai 7y agoDon’t forget about interest only ARM mortgages and other factors making higher ratios possible (at least in the short term).
- mdasen 7y agoHousing supply has been increasing at far lower levels recently than it has historically. Lots of good jobs have been flooding certain cities and which means people with the money to bid up the existing stock. Since people are coming for the jobs and they have money and there isn't new housing to soak up that demand, those people end up bidding up what supply exists.
- zik 7y agoI don't think it's as simple as that. In Australia we've had a massive housing boom and consequently the market has been flooded with houses. Strangely this hasn't led to lower house prices. There's a large amount of housing which is purchased and is sitting empty, mostly investment properties which people bought with the intention of re-selling at a much higher price so they're not concerned about renting them out. This has led to a perverse situation where very expensive houses are being built and left empty and prices continue to rise to support this.
- imtringued 7y agoWhy does that matter? If no one can afford the property then the current property owner will make a huge loss.
- mdasen 7y agoThat can happen for a time. Investors might sit on things hoping that it will appreciate in value. However, many times there's a myth of "empty houses" used to justify not building more. Some people have cited non-owner-occupied condos as "empty" when they're merely rented. When a large new property comes on the market, often the owners take time selling off units so as not to flood the market and drive down their investment (just as one doesn't want to unload shares all at once and overwhelm demand). There's always a certain level of vacancies and a lot of the time when people think there are a lot of vacancies, it's not actually high. They just notice a couple fancy buildings that aren't full. Prices are also sticky. If you bought a home at $X, you're going to psychologically want to get that back when selling. If you're a buyer, you've seen prices at X and you've become accustomed to thinking it costs that. And a lot of people say that there's been a "massive housing boom" when production is a tiny fraction of historical levels. This can be understandable. If your area used to increase housing by 1% per year from 1920-2007 and then shrunk down to 0% per year from 2007-2015, increases of 0.5% per year might seem like a boom. However, it's below historical levels and might be coming after a near decade of under-creation. As such, there can be huge pent-up demand combined with a level of building that's still well below normal (but seems high compared to post-mortgage-crisis levels). EDIT: https://twitter.com/TweetBenMax/status/1218712012114538497/photo/1 https://twitter.com/TweetBenMax/status/1218712012114538497/p... This isn't the best graph because housing production had already dropped off by the 90s, but it's still pretty clear. Everyone in expensive US cities thinks we're building lots of housing. However, when you look at it we're just not. Compared to the dip after the mortgage crisis, we're definitely building more. However, these expensive cities are also seeing historic levels of high-income job growth and migration towards them while having building at lower than historical levels. Maybe Australia is different, but it's probably just a comparison with post-mortgage-crisis lows and not actually a building boom. Even with new stock coming in, it can take years (think 5-15) to settle.
- 12xo 7y agoThe other aspects of prices is the replacement cost for an existing or the build cost for new. Its a min of $500 a sqft to build in CA these days. Double and triple that for a high end home. Building codes, permits, zoning, materials and labor have all increased dramatically over the last 40 years.Those add significant costs to housing.
- bequanna 7y agoComparing income vs median sales price across time isn’t quite as interesting as income vs. total monthly payment (principal + interest).
- natoliniak 7y agoyes, but in many desirable areas a significant portion of buyers are cash only buyers whose monthly payment is $0 (other than property taxes).
- bequanna 7y agoIntuitively, I would say the number all cash buyers is a pretty small number in every market. Especially in a low interest rate environment. Most people with the means to pay cash for a property would likely be savvy enough to understand that that they would be better off getting a jumbo mortgage at 3.25% and deploying that capital at a higher rate elsewhere.
- scarmig 7y agoIIRC San Francisco all-cash buyers were accounting for 25% of transactions a couple years ago.
- e1g 7y agoManhattan is usually at 50% all-cash. Recently it softened to 40%+, but still much higher than intuition based on everyday-folks might suggest.
- tspike 7y agoBuy cash, refinance later. In a competitive housing market, sellers would rather take the cash than risk a contingency falling through.
- jedberg 7y agoIn hot markets you see a lot of cash buyers because they don't want to lose the deal. Some will then finance afterwards, and a lot of them are flippers who will sell the house a few months later.
- weaponizedwords 7y agoAnyone know what caused such a jump around 2001-2003?
- ldayley 7y agoPost dotcom bust and 9/11 interest rates were dropped significantly to spur consumer spending.
- weaponizedwords 7y agointeresting, so interest rates go down and prices go up then?
- bequanna 7y agoRight. Without factoring in interest rates, this doesn’t really tell us much about how affordability has changed.
- dmurray 7y agoThe cost of the home is normally quoted in dollars today (what the seller receives), not the total dollars you will pay on your mortgage. So interest rates don't have much to do with affordability.
- deleted 7y ago[deleted]
- KennyLogins 7y agoThis map looks more like the result of a highschool project, not Harvard published data. I wish they would have linked the specific sources and labeled more on the map.
- ianai 7y agoWithout looking at their data, I can vouch that this sort of data may be prohibitive to access. The players involved don’t see data as something to be given out freely IME. It’s probably provided in a technically difficult to parse way-just to add insult to injury. Enough so that the simplicity of the presentation is remarkable.
- awb 7y agoIs there a way to download the raw data?
- KoftaBob 7y agoSay what you will about Texas government, but they know how to stay out of people's way and let housing supply keep up with demand efficiently. California on the other hand, is absolutely pathetic when it comes to this. So absurd watching a state whose booming economy is funneling most of that money to property owners pockets. A huge and abject failure that will be in future economics textbooks as the example of how giving local government too much power creates huge bottlenecks. Not to be overdramatic, but NIMBYism and overly restrictive zoning is California's equivalent to a tumor. Unchecked growth (of housing prices) that sucks all the resources out of the host (renters and people looking to buy a first home).
- newnewpdro 7y agoBy far the majority of renters I know in CA, in SF and Santa Monica, have largely abandoned any hope of homeownership and live incredibly spendy lifestyles while they can afford to be in the area. Eventually, they will wise up, move out of their expensive rentals and turn frugal - likely outside of these cities with a good possibility of leaving the state. In their absence, new young folks in their high-earning high-spending phase will move in, and the cycle repeats itself. None of this is bad for California. The state, in the desirable cities, is a meat grinder drawing in a constant supply fresh, gullible, overpaid talent, working not just to pay high rents but high everything, including state income tax, while saving very little. When they get exhausted, they leave, and make room for more fresh meat.
- thatfrenchguy 7y ago> supply fresh, gullible, overpaid talent, working not just to pay high rents but high everything, including state income tax, while saving very little IDK, most people in know in California seem to be saving 30-50% of their post tax income. That's clearly not the case anywhere else in the world.
- JimmyAustin 7y agoAnd 30-50% is A LOT more in absolute dollars than it is outside of Cali.
- sologoub 7y agoOver 8x seems to be a CA thing mostly (one tile in Oregon bordering CA). Wonder if we can thank prop 13 for that? (Frozen property tax that constrains supply and encourages ani-development stance by removing the tax consequences of appreciating property)
- bcrosby95 7y agoI doubt you can lay all the blame on prop 13. It passed because CA home prices went crazy in the 70s. My parents bought a home in 1973 for $34k and sold it for $95k in 1978 (the year prop 13 was enacted). A 3x increase in 5 years.
- jdkee 7y agoThat was likely due to the macro environment of high inflation in the 70s until Paul Volcker knocked it down.
- bradlys 7y agoAll the blame? No. Most of the blame? Probably. The same that happened to your parents happened to landowners of huge properties. They still pay peanuts for property tax 40 years later. In the end - it helped people who got there first and then screwed everyone else over. It helped rent seekers more than anything.
- dv_dt 7y agoThat is a flaw of Prop 13, but I don't see how it drives home prices up? Wouldn't it motivate devleopers to build properties to rent out because of a long term margin improvement in the profit? (because the property tax rises are constrained below most inflation).
- tspike 7y agoZoning is a big issue, neighborhood associations almost universally oppose new development and they have a lot of say in the process.
- H8crilA 7y agoThere is no bubble in technology looks at TSLA $650
- downrightmike 7y agoThe bubble is in assets. Anything that any slight bit of profit growth or good publicity will go up higher as people and HFT bots are looking to get the best return possible.
- xmprt 7y agoI'm not a TSLA shareholder because I don't really understand how the company is being valued but I also wouldn't be surprised if the stock price goes beyond $1000 within the next 2 years.
- thundergolfer 7y agoIn late 1980s Melbourne, Australia my dad and his best friend were accountants and bought their houses for ~$40,000AUD, ~3 times their annual income. According to the best friend, this was considered a lot to pay for a home. In 2020, those houses are around ~$1.8-2M, so ~22.5-25 times the annual income of someone that has their job today. In Melbourne and Sydney generally, housing is 10 and ~13x annual income. Above 6-8 is already considered _extremely unaffordable_. Sydney is 2nd only to Hong Kong in housing un-affordability. It's a profound change across a generation. Among my college-educated friends, the only one's thinking of buying property are either high income (doctors, investment bankers) or buying in markedly worse (thus cheaper) areas than they lived in as children.
- flukus 7y agoMine did the same in the early 80's on a cleaners salary, granted the money was better for cleaners back then (no several levels of contractors) and in a less desirable location (Gold Coast), but on my top decile for the country salary there's no way I could afford the same house today. It was also a single income household since they started a family about the same time. It shows how much our standard of living has dropped in four decades. > Among my college-educated friends, the only one's thinking of buying property are either high income (doctors, investment bankers) or buying in markedly worse (thus cheaper) areas than they lived in as children. Personally I scaled down expectations and bought a small "affordable" apartment. It's fine for me and achieves some financial stability but I wouldn't want to raise kids in one.
- sien 7y agoIn the late 1980s Australian interest rates were 17% so the repayments required were much higher on the same level of debt. However, your point in general stands that houses in Australia are much more expensive than they were 30 years ago. But a better metric is the proportion of income required to pay for a house. It's also worth noting for Australians and Americans that these housing cost issues are a global issues in many successful cities around the world. Some cities and states have avoided these issues. In particular Texas in the US has seen huge growth and has managed to keep prices down.
- Jaygles 7y agoI almost don't want to buy property as a protest to the horrible policies we have regarding basic necessities. Why should property owners be entitled to a major portion of my productivity/success? I'll rent the cheapest apartment I can find until the next housing crash or we have some sensible policy put through that negates the investment aspect of housing.
- OJFord 7y agoIs property ownership a basic necessity though? Or is its prevalence as an ideal a product of a burgeoning middle class through the last century? I understand it's not even so common (or common as a goal) now in continental Europe, they think it's some silly English thing to care so much about home ownership.
- rorykoehler 7y agoIt absolutely is a basic necessity unless you wish to remain a serf for life.
- thorwasdfasdf 7y agothat happens anyways. if you own a home and have it paid off, you'll still be paying super high property taxes on that reallly expensive house. and with most 1st world governments taking in 40-55% of all income earned nationwide, we're all just serfs, at the end of the day.
- rorykoehler 7y agoI expect services for the taxes I pay. Paying taxes to my government is basically paying myself because I like living in a functioning society. If the government isn't doing a good job I'll try vote them out. Nothing like serfdom.
- zornado 7y agoThe difference is one doesn't have a choice in paying taxes i.e. one is obligated to pay them. If one doesn't pay, one loses their house.
- salty_biscuits 7y agoThis plot suffers from my pet peeve for geographic display of data. Small areas will have all the interesting details (e.g. extreme outliers in inner city areas), and you just can't see them from a zoomed out perspective.
- kaybe 7y agoDo you have a favourite solution for this problem?
- salty_biscuits 7y agoNo, but I would love to hear about one.
- throwmeaway999 7y agoI used to make about $600K/yr salary in SF and couldn't imagine affording a home there that I'd feel comfortable with a 30-year mortgage payment on.
- apta 7y agoWhere did you move to after that, and what's your current income if your don't mind sharing?
- sadasy3748 7y agoI currently make 600K / year in SFBA and don't feel comfortable buying a home (2000+ sqft in a good neighborhood is 2.5M) We rent for $7K / month but our mortgage would be 14K a month if we bought. I am not sure how much money I would need to make to do this. My worry is that I lived through 2 recessions and we'd almost certainly lose everything if I lost my job and couldn't afford the mortgage.
- Domenic_S 7y agoWith 20% down it should be "only" $12k for the PITI. If you like to keep your house payment at 1/3 your income then 12 * 3 * 12 = $432k/yr is what you need.
- 6gvONxR4sf7o 7y agoAt that salary, you should be able to save pretty quickly to put more than 20% down. Live like you're only making $150k/yr and you can buy a $2.5M in cash in a decade if you prefer a $0/month mortgage.
- 6gvONxR4sf7o 7y agoIt's ridiculous to say you can't imagine affording a home on a salary where you could live off 150% of the median household income while still saving enough to buy a 150% of a median home for straight cash in under a decade. Color me incredulous. [Assuming you live like you make $150k/year (a bit over 150% AMI), you'll have about a quarter million per year left over after taxes. You could save $2.1M (a bit over 150% of median home) in cash in just below 9 years.]
- maerF0x0 7y agoThis data makes me wonder why taxation doesnt take CoL into account? "Lower" salaries in the Bay Area are upper tier tax brackets.
- AWildC182 7y agoThis is a feature, not a bug. This helps prevent everyone from completely piling on top of desirable places and further driving prices up, as well as effectively subsidizing poorer places cover the remaining 99% of the US.
- maerF0x0 7y agoWhy shouldnt people pile onto something that is desirable? Isnt that effectively a market making their decision?
- baroomba 7y agoCross-reference with school quality and you’ve got a map I’ve wanted for some time. Difficulty: it’ll be less useful the more people have access to it :-/
- ccvannorman 7y agoI may be interested in building such a map. Pm me (check my profile for website, which has my email).
- bradlys 7y agoWhile we're on this subject - does anyone know how median household income is actually calculated within the USA? I feel like there's some weird distortion bubble within the bay area because I've seen the data on household income within the bay area and the amount of households under $100k/yr seems way too low. Individuals under $100k/yr would make sense but households? No - it doesn't add up. For instance, the median household income in SF is around $100k/yr. By its own measure in SF - $100k/yr is considered poor for a household of 4. I have a hard time believing that somewhere around 50% of residents in SF are poor. I feel like something is off with the way this is measured. How can it be that a large amount of housing is SFH (can't be rented on a $100k/yr income), about half of people rent here (thus - half of people can't be prop 13 beneficiaries), and yet the median income is $100k/yr? The median rent in SF is beyond $2,500/month - which is the max a $100k/yr household can afford. I've looked at the stats a bit and it just feels like the incomes are estimated to be too low across the board for households. I see way too many homes/apartments where there are 3+ working adults. If I look at all the people I've worked with or socialized with - I can't find a single one where the household income was below $150k+. I know there's a bubble in terms of what I've worked with or interacted with - but the truth is that anyone below $100k/yr income was very likely renting with someone else. (Which would push the household income higher)
- thorwasdfasdf 7y agogotta remember 75% of SF is rent controlled. Plus, if your income is below 60% or 40$ of median income you can get nearly free housing from subsidized housing.
- bradlys 7y agoBut this applies outside of SF too - I used SF as a relatable entity. Santa Clara and plenty of other cities without rent control are the same. Subsidized housing is not very common within the bay area. I doubt 20%+ of people are living in that...
- RickJWagner 7y agoI grew up in the 70s in a two-story house with 4 bedrooms (5 if you count the unfinished basement) with Mom and Dad, plus 8 kids. A total of 10 people in the house. No air conditioning until later years, two bathrooms, no garage. My wife and I, with our 3 kids, currently live in a house that's bigger and has 5 bedrooms and 3 1/2 bathrooms and of course the cars are housed. It's more luxurious in every way than the house I grew up in. I think this situation is not uncommon. Sure, houses cost more. So do cars. Both last longer, are more energy efficient, have more amenities, and are better in just about every way. I'm not surprised they cost more.
- gbronner 7y agoRestrictive governments in coastal cities (Boston, NY, SF, LA, now Seattle) as well as a few places where people, often retirees, are asset rich but income light (N. Arizona, S. Florida, some parts of Colorado) are limiting nationwide growth. It is a shame that there are no national supply-siders in congress who are willing to to 'encourage' coastal building.
- thorwasdfasdf 7y agofor some reason, it's getting harder and harder to build shelter. Shelter is becoming increasingly expensive and increasingly less affordable. This is in stark contrast to the progress that humanity has made in many other industries. I think it's about time we started asking why. Most people don't understand why. Why is it so hard to build shelter. Why is something we've done for hundreds of years so well, all the sudden become so hard and so innaccessible that only the most elite can afford it.
- neilparikh 7y agoThe reason is fairly obvious. In most of the places (SF, NY etc.) where housing is expensive, it is illegal (or very difficult to get approval) to build new housing.
- mNovak 7y agoFor anyone wondering how these price multiples translate to a fraction of median annual income paid on mortgage.. Briefly poking around a mortgage payment estimator (assuming 20% down, 3.75% 30 year fixed rate), annual mortgage payments come to roughly 7.2% of purchase price (including tax and insurance). Slightly higher towards $100k price (7.8%) and slightly lower towards $1.5M+ (6.8%), but lets say 7.2%. So, for a house priced at X times median income, you're paying 0.072X of annual median income every year into mortgage payments. 2-3x in the chart means 14-21% of income spent on mortgage. 8x means 57.6% of median income spent on mortgage. (Quick reminder that 20% down on an 8x house is 160% of median annual income in the first place)
- 6gvONxR4sf7o 7y agoWhenever these graphs come up, I want to see the median ratio between sales price and income, not the ratio between median sales price and median income. I expect they'd be very different. But that data isn't so readily available, so report what you've got I guess.