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> Average New York City metropolitan area house prices are up 706% since 1980 (or 376% more than US consumer prices, and 326% more than US wages). For San Franc

> Average New York City metropolitan area house prices are up 706% since 1980 (or 376% more than US consumer prices, and 326% more than US wages). For San Francisco the rise is 932%. Mortgage interest rates were 14% in 1980, they are less than 3% now. This explains much (but not all) of the rise in the nominal cost of housing compared to wages. When people bought $50,000 houses in the nicest parts of Palo Alto in 1975, other people thought they were crazy because of the interest rates.

jbay808 5y ago
(Mortgage interest rates went up greatly between 1975 and 1980, but setting that aside...) These days it's hard to imagine not borrowing as much as possible because prices are so high and rates are below inflation. But back then why wouldn't someone, say, live with their parents until they can buy that $50,000 house in Palo Alto entirely from their savings? No doubt that seemed like a lot of money back then. But regardless, at some point, interest rates get high enough and principal low enough that you might actually choose not to borrow money.
pessimizer 5y ago
> Average New York City metropolitan area house prices are up 706% since 1980 (or 376% more than US consumer prices, and 326% more than US wages). Are they just subtracting here? Because that's not how percentages should work.
throwaway984393 5y ago
Yeah, the rates soared in the 1970s, and went over 20%. The 1980s also gave birth to Adjustable Rate Mortgages, in an effort to get more borrowers with the promise of lower rates a decade later. Which then of course led to predatory lending practices when they'd start with a low rate, switch to a high rate, and the borrower would default. So in the 90s, with interest rates still high, regulation was passed to lower the capital requirements for Fannie & Freddie to give out loans - leading to more lending than could be covered by capital, leading in 2008 to a spectacular global "whoops!". I think the housing prices are high because the market can get away with it. If I'm selling a house, new or old, I'm gonna price it at what the market values it at, even if it cost less to produce or if I didn't pay that much for it. And the value of it will keep going up as long as there appear to be buyers for it, and most cities in the country aren't losing value as long as the economy grows.
- lotsofpulp 5y ago
  > So in the 90s, with interest rates still high, regulation was passed to lower the capital requirements for Fannie & Freddie to give out loans - leading to more lending than could be covered by capital, leading in 2008 to a spectacular global "whoops!". There was outright fraud happening in the years leading up to 2008, with people writing down false incomes and assets, and underwriters looking the other way on verifying them.
  - eli_gottlieb 5y ago
    And did anyone who committed that fraud go to jail?
    - lotsofpulp 5y ago
      The only people who I know committed fraud were the people filling out loan applications with false information about income/assets. And it would not be politically popular to go after them, and I do not recall ever hearing about them going to prison. As for the underwriters and the executives who instructed underwriters to look the other way? I also do not remember them going to prison, but I also do not know if there was any evidence of their intent. The beauty of many white collar crimes, where you can always claim you made an unintentional mistake and you are not dumb enough to write an email incriminating yourself, but rather talk it out over lunch in an all party recording law jurisdiction.
- jeffbee 5y ago
  Mortgage rates did not exceed 20% at any time. They peaked in 1981 at 18.4%. They were over 18% for a few days only. http://www.freddiemac.com/pmms/pmms30.html http://www.freddiemac.com/pmms/pmms30.html
cheriot 5y ago
It's not interest rates. $100k house, 14% interest, 30yr fixed: monthly payment of $1,427 $235.3k house, 3% interest, 30yr fixed: monthly payment of $1,427 Now that house now costs $706k in NYC and $932k in SF... the problem is supply. Nationwide, it takes a higher income to buy a home than it use to (median sales price / median income): https://fred.stlouisfed.org/graph/?g=FYMk https://fred.stlouisfed.org/graph/?g=FYMk The problem is even worse in prosperous cities.
- cko 5y ago
  But 40 years at 3% inflation has a multiplier of 3.26 on top of that $235k, which brings it over $706k. Most people don't pay the median sales price outright. They pay it in 360 installments.
  - imtringued 5y ago
    True and that is why interest rates on loans are usually above inflation. Inflation in almost everything except housing has been going down but interest rates are set according to the overall inflation rate meaning nowadays low interest mortgages massively benefit from inflation. Low interest rates have doubled housing prices but they didn't double financing costs. Speculators merely predict the fundamentals: A market with little supply and huge demand.
  - j7ake 5y ago
    Have people done calculations where they compare housing prices but normalised by interest rates? I always find it difficult to compare housing prices when interest rates have dropped so much over the past decades.

jbay808 5y ago

(Mortgage interest rates went up greatly between 1975 and 1980, but setting that aside...) These days it's hard to imagine not borrowing as much as possible because prices are so high and rates are below inflation. But back then why wouldn't someone, say, live with their parents until they can buy that $50,000 house in Palo Alto entirely from their savings? No doubt that seemed like a lot of money back then. But regardless, at some point, interest rates get high enough and principal low enough that you might actually choose not to borrow money.

pessimizer 5y ago

> Average New York City metropolitan area house prices are up 706% since 1980 (or 376% more than US consumer prices, and 326% more than US wages). Are they just subtracting here? Because that's not how percentages should work.

throwaway984393 5y ago

Yeah, the rates soared in the 1970s, and went over 20%. The 1980s also gave birth to Adjustable Rate Mortgages, in an effort to get more borrowers with the promise of lower rates a decade later. Which then of course led to predatory lending practices when they'd start with a low rate, switch to a high rate, and the borrower would default. So in the 90s, with interest rates still high, regulation was passed to lower the capital requirements for Fannie & Freddie to give out loans - leading to more lending than could be covered by capital, leading in 2008 to a spectacular global "whoops!". I think the housing prices are high because the market can get away with it. If I'm selling a house, new or old, I'm gonna price it at what the market values it at, even if it cost less to produce or if I didn't pay that much for it. And the value of it will keep going up as long as there appear to be buyers for it, and most cities in the country aren't losing value as long as the economy grows.

lotsofpulp 5y ago
> So in the 90s, with interest rates still high, regulation was passed to lower the capital requirements for Fannie & Freddie to give out loans - leading to more lending than could be covered by capital, leading in 2008 to a spectacular global "whoops!". There was outright fraud happening in the years leading up to 2008, with people writing down false incomes and assets, and underwriters looking the other way on verifying them.
- eli_gottlieb 5y ago
  And did anyone who committed that fraud go to jail?
  - lotsofpulp 5y ago
    The only people who I know committed fraud were the people filling out loan applications with false information about income/assets. And it would not be politically popular to go after them, and I do not recall ever hearing about them going to prison. As for the underwriters and the executives who instructed underwriters to look the other way? I also do not remember them going to prison, but I also do not know if there was any evidence of their intent. The beauty of many white collar crimes, where you can always claim you made an unintentional mistake and you are not dumb enough to write an email incriminating yourself, but rather talk it out over lunch in an all party recording law jurisdiction.
jeffbee 5y ago
Mortgage rates did not exceed 20% at any time. They peaked in 1981 at 18.4%. They were over 18% for a few days only. http://www.freddiemac.com/pmms/pmms30.html http://www.freddiemac.com/pmms/pmms30.html

cheriot 5y ago

It's not interest rates. $100k house, 14% interest, 30yr fixed: monthly payment of $1,427 $235.3k house, 3% interest, 30yr fixed: monthly payment of $1,427 Now that house now costs $706k in NYC and $932k in SF... the problem is supply. Nationwide, it takes a higher income to buy a home than it use to (median sales price / median income): https://fred.stlouisfed.org/graph/?g=FYMk https://fred.stlouisfed.org/graph/?g=FYMk The problem is even worse in prosperous cities.

cko 5y ago
But 40 years at 3% inflation has a multiplier of 3.26 on top of that $235k, which brings it over $706k. Most people don't pay the median sales price outright. They pay it in 360 installments.
- imtringued 5y ago
  True and that is why interest rates on loans are usually above inflation. Inflation in almost everything except housing has been going down but interest rates are set according to the overall inflation rate meaning nowadays low interest mortgages massively benefit from inflation. Low interest rates have doubled housing prices but they didn't double financing costs. Speculators merely predict the fundamentals: A market with little supply and huge demand.
- j7ake 5y ago
  Have people done calculations where they compare housing prices but normalised by interest rates? I always find it difficult to compare housing prices when interest rates have dropped so much over the past decades.