8 ms·

who has all this money to spend? everywhere everything is so expensive. i make a ton, and this doesn't add up. nothing about home prices seems to add up.

by tayo42 5y ago

ryan93 5y ago
I think people have just increased the fraction of their income they are willing to spend. If people in Austin will spend 50% of income instead of a third prices can go up a lot
- tayo42 5y ago
  People over spending is the only thing that makes sense
- Bombthecat 5y ago
  Yes, this. There was a question why people want to move to Munich even though it is the most expensive city in germany. Answer : because it is a city! Disco, cinema, stuff to do in your free time. And more and more people are willing to sacrifice 2/3 (or more) of their income just to live in the city. (also part of the first question) So, i dont see rent going down anytime soon. And if there will be a recession, even more people are willing to sacrifice everything, just to move to the city.
- itsoktocry 5y ago
  >If people in Austin will spend 50% of income instead of a third prices can go up a lot Exactly this. Somewhere along the lines in the past decade or so, it became completely normal to lend people 10x their income to buy a home, when historically that figure was 3.5x.
Nbox9 5y ago
A lot of extra money was slushed around the economy in the last 2 years. Who has money to spend? Anyone that owns stocks or real estate.
toomuchtodo 5y ago
Mortgage borrowing costs are at historic lows.
- tayo42 5y ago
  its still expensive to borrow $700,000, on top of your current expenses. that's an extra payment of $3300, whos got that laying around to wait for a house to be built
  - toomuchtodo 5y ago
    A down payment is required if not paying cash, usually 10-20%. You’re financing the rest at 2-3% for 30 years, or borrowing against your public securities at ~1% and a reasonable amount of leverage (~%30) dictated by your brokerage.
  - arthurcolle 5y ago
    If the Fed is committed to propping up equity markets which they asserted in no uncertain terms when markets died in the beginnings of the realization that COVID was going to be much more substantive than SARS or H1N1, it was clear that equity markets would take the "good news" of lockdowns + continued lower interest rates as signs that equity markets were going to continue to rally. I mean basically where is there yield? Crypto + NFTs (yuck to the latter), real estate and equities. Even just running correlation analysis on these various assets over the last 20 years showed that crypto was super underpriced (despite only 12/13 year track record) while real estate is tremendously overvalued and equities were the only thing to react in a reasonable way to both (1) the initial realization covid was serious and (2) the Fed stepping in with 2 novel revolvers for SMB and for corporate credit. Treasury even threw in a bit into the bowl and performed stimulus. The last 1.5 years likely minted more "wealth" than in the previous 100 years combined (hand waving a bit) - a framework was laid to make much more money than what you put in provided you were looking at what was to come based on what was spoken.
    - wombat23 5y ago
      > Even just running correlation analysis on these various assets over the last 20 years showed that crypto was super underpriced care to elaborate?
smabie 5y ago
I think for a lot of (white collar) people, the last year and a half of covid has been the most lucrative time of their entire lives. Crazy returns across all asset classes.
- tayo42 5y ago
  my measly half million dollar worth of stocks "only" grew 30%. There's a significant amount of people do that much better than i did? what am i missing?
  - fridif 5y ago
    I spent 1.1M on a house with my wife of course and am very happy with my purchase. Lots of land and nobody around to tell me what to do.
    - pengaru 5y ago
      > with my wife > nobody around to tell me what to do
      - matt_s 5y ago
        LOL
      - satronaut 5y ago
        burn!
      - fridif 5y ago
        The only person this reflects on is you. My life has done nothing but improve since getting married.
        pengaru 5y ago
        > My life has done nothing but improve since getting married. Presumably you wouldn't both mention her participation and dismiss her presence in the same breath... Not sure what you're trying to say about this reflecting on me, it's just an amusing contradiction. I think it reflects well on my sense of humor.
arthurcolle 5y ago
Stocks only go up
- grepfru_it 5y ago
  Money printer goes brrrrrrr
- blitzar 5y ago
  You misspelt Stonks.
AndrewKemendo 5y ago
Yes! This has been my nagging question for years too. I make 5x the median wage in my county and my county has the second highest wage in the US. I see all these $M houses being sold left and right and I'd never feel comfortable buying a $M plus house. What gives?
- leehuffman 5y ago
  A ~14 year bull market, interest rates, and the last decade+ of appreciation on real estate. Everyone is flush with cash and borrowing money against a home is free.
- hnick 5y ago
  If you already own a home that appreciated to $800k+ then trading in to buy at $1M doesn't seem as bad. Prices seem silly to me here too (Australia) but a lot of it seems to be a combination of the perception that house prices just always go up, so you have to "get on the ladder" as they say and trade your way along. Each step doesn't seem to be a huge investment in itself. If you don't hop on, then you get left behind.
  - sgt 5y ago
    But that means moving all the time. Yes you will trade yourself to the best house in the end and perhaps to a much better neighborhood, but moving can be a bit traumatizing...
    - hnick 5y ago
      One option is to move as you change jobs. But tax law here also makes loss-making investment properties attractive to people, and borrowing against equity is another thing. Interest-only loans (as interest is a deductible investment expense), plus other expenses (all the better if it's in a nice holiday destination so flights and hotels to "inspect the property" are deductible), resulting in a minor loss on rent, which is offset against your primary salary and other investments. Negative gearing like this allows people to basically zero out a house on the balance sheet and move on to buying another. Let it appreciate for a few years and you're ahead. Be a major voting base and politicians won't dare ruin your gravy train.
sneak 5y ago
A monthly payment on a mortgage of $1mm is ~$4k. That’s the same cost to rent a 2-3br in the 1k-1.4k square foot range in much of San Francisco. Napkin math suggests that it’s a reasonable payment for those >=$170k annual income, which is very common in software in the USA.
- tayo42 5y ago
  there's also insurance, pmi if you didn't do the down payment, hoa seems common, taxes. Thats all more then 50% of my take home. (Im not including my rsu, im hesitant to budget off that theyre so variable) And a million dollar home is cheap at the moment. Looks like the median in sf if 1.5million.
  - kiklion 5y ago
    I financed 250,000 of a mortgage last year, and my mortgage payment is about $1200 a month (including taxes and insurance) Assuming taxes and insurance correspond with a % of home value, a 1 million mortgage would be about $4,800 a month. Or about $4,000 a month if talking about a $1 million dollar house with 80% financed.
jdgoesmarching 5y ago
Asset managers, banks, property developers, and just general commercial construction are all hiring mostly the same trade professionals as residential. The former are snapping up a lot of homes.
- deleted 5y ago
  [deleted]
zthrowaway 5y ago
As someone with two realtors in my family, my understanding is most people are living beyond their means and don’t actually have the money. But the rates are low and loans are being handed out like hot cakes. People are carelessly and knowingly going into negative equity right now and will have a big wake up call once this market stabilizes, they’re going to be stuck for quite some time. Some of these people are even tapping out their 401k in their 40s just go buy right now. I don’t know if it’s FOMO or what but it makes zero sense to me. There are those who sold at a higher price and got spring-boarded into a higher priced house but these are the exceptions.
- cerved 5y ago
  it worked out so great last time..
- Handytinge 5y ago
  I'm unsure if that passes the litmus test. In Australia, we had a royal comission into banking a few years ago, and the outcome was much tighter rules on lending, equity from assets, etc. We also don't allow people to invest in their own or family property from their superannuation (retirement fund). Yet our market has grown and grown, rising 17% or so in the last 12 months and almost 7% this quarter. Yes we have a very low interest rate currently, however the median wage to house price gap is growing bigger daily. Yet the demand still far outpaces supply.
wombat23 5y ago
I've been wondering the same. Apparently, where I live (HCOL) people don't care about ever paying off the full amount, as long as the monthly installment is low. Regulations only require that you paid off 33% of the house value after 15 years. You do need to start at 20% capitalization though, which at current prices means they need to own assets already (market risk), or have bonkers amounts of currency sitting around (inflation risk). I understand the FOMO some people must have. I wonder if ultimately there is a cascade happening, where increased valuations lead previous owners to either take new mortgages, or sell their old house, and pay more for a new one. Which creates a cycle of ever increasing prices? I've never read anything though whether such an effect exists.
- kleinsch 5y ago
  In HCOL areas of the US, 10% down is becoming more common with private lenders and 5% is even a possibility (or at least was pre-pandemic). Pre-pandemic we had multiple competing banks for a $1MM+ mortgage w/ 10% down.
mgkimsal 5y ago
Money is “cheap” and people think in terms of monthly payments only. Done larger builders are pitching things in terms of monthly costs only; they don’t even publish prices, just payment estimates.
lordnacho 5y ago
I don't get it either, and I'm a hedge fund manager. To my mind nothing seems like it's a sensible price in any of the cities I look at. I mean I get that there's a fair few people making good money who can buy a £2M home, but it doesn't make any sense that there are entire swathes of London where every home is like that. A quick google suggests that a £100K income is in the top 3% in this country, and top 1% is about £176K. Sure, there's a few hundred football players averaging maybe £3M a year who can thus buy maybe a £15M palace, but if you go on a property site they could each buy one and still have pages and pages of places left on the market. Similarly there's a bunch of finance/media/law people who've climbed to the top of the greasy pole and could afford a £3M house. But how many can we really be talking about? A few thousand? Ten thousand? Are there really that many MDs and law partners in London? Average income is still well under 6 figures in this country, and I know a load of doctors who are only just scraping into that category in their 30s. So if you're just scraping into 6 figs as a highly trained and rare specialist, how can there be so many houses that cost 7 figures? Even if you add parental help, how many people who are splitting inheritance between 2/3 kids is it actually going to help? I suspect a lot of people have actually drawn on all reserves: found a high income partner, got help from the parents, got a max leveraged mortgage, and possibly some have lied about their income. I get the feeling it will end badly.
- thrwyoilarticle 5y ago
  Being valued at £2M doesn't mean you could sell all of them for that price or that the people living in them paid £2M for them. The sort of person who could afford a nice house 3+ decades ago and spent the intervening years living in London isn't likely to move to somewhere more rural just because they can realise an investment.
  - RobertKerans 5y ago
    > Being valued at £2M doesn't mean you could sell all of them for that price or that the people living in them paid £2M for them But in London these houses do sell, normally very quickly (and bullshit apartments in shiny new blocks that are in same price bracket I guess same, generally they do seem to sell, but I assume that's just parking money for tax purposes so not quite same thing).
stevehawk 5y ago
they don't have it. they're borrowing it
cmckn 5y ago
I tend to agree, but the numbers aren’t that crazy. My rent in the Seattle area is $2500/month. I could buy a reasonably-nice house here for around $750k. If you have a $150k down payment (which isn’t unrealistic to amass over ~5 years on a nice tech salary), your mortgage payment will come out to ~$3000/month. That’s not chump-change, and it’s more than my current rent; but you’re getting a lot more for your money. The numbers get a lot nicer if you’re splitting them with a partner. Am I jumping to make this particular financial decision? Nah. But it’s not wildly out of reach.
- patentatt 5y ago
  What about property taxes? Don't know about WA, but where I am property taxes are nearly half again as much as the principal and interest, so a hypothetical $3k (P+I) could be more like $4-4.5k in some areas.
  - BizarroLand 5y ago
    I bought a $500k home in Pierce county, property taxes are 1.2% here vs .93% in King County. I'm paying about $6k/yr in property taxes and they would pay about the same +/- $1k for their $750k home.
comeonseriously 5y ago
My SO and I are both devs and we make good money. We live in a low CoL area and basically live on one income. We've been tightening our belt even more because everything is so crazy. We paid off our house recently but it was about 14% of our income. There's NO WAY I would move right now and buy a house and have it 30, 40 or 50% of our income. I don't understand how people who make the median are able to stay afloat right now.

who has all this money to spend? everywhere everything is so expensive. i make a ton, and this doesn't add up. nothing about home prices seems to add up.

by tayo42 5y ago

who has all this money to spend? everywhere everything is so expensive. i make a ton, and this doesn't add up. nothing about home prices seems to add up.

ryan93 5y ago

I think people have just increased the fraction of their income they are willing to spend. If people in Austin will spend 50% of income instead of a third prices can go up a lot

tayo42 5y ago
People over spending is the only thing that makes sense
Bombthecat 5y ago
Yes, this. There was a question why people want to move to Munich even though it is the most expensive city in germany. Answer : because it is a city! Disco, cinema, stuff to do in your free time. And more and more people are willing to sacrifice 2/3 (or more) of their income just to live in the city. (also part of the first question) So, i dont see rent going down anytime soon. And if there will be a recession, even more people are willing to sacrifice everything, just to move to the city.
itsoktocry 5y ago
>If people in Austin will spend 50% of income instead of a third prices can go up a lot Exactly this. Somewhere along the lines in the past decade or so, it became completely normal to lend people 10x their income to buy a home, when historically that figure was 3.5x.

Nbox9 5y ago

A lot of extra money was slushed around the economy in the last 2 years. Who has money to spend? Anyone that owns stocks or real estate.

toomuchtodo 5y ago

Mortgage borrowing costs are at historic lows.

tayo42 5y ago
its still expensive to borrow $700,000, on top of your current expenses. that's an extra payment of $3300, whos got that laying around to wait for a house to be built
- toomuchtodo 5y ago
  A down payment is required if not paying cash, usually 10-20%. You’re financing the rest at 2-3% for 30 years, or borrowing against your public securities at ~1% and a reasonable amount of leverage (~%30) dictated by your brokerage.
- arthurcolle 5y ago
  If the Fed is committed to propping up equity markets which they asserted in no uncertain terms when markets died in the beginnings of the realization that COVID was going to be much more substantive than SARS or H1N1, it was clear that equity markets would take the "good news" of lockdowns + continued lower interest rates as signs that equity markets were going to continue to rally. I mean basically where is there yield? Crypto + NFTs (yuck to the latter), real estate and equities. Even just running correlation analysis on these various assets over the last 20 years showed that crypto was super underpriced (despite only 12/13 year track record) while real estate is tremendously overvalued and equities were the only thing to react in a reasonable way to both (1) the initial realization covid was serious and (2) the Fed stepping in with 2 novel revolvers for SMB and for corporate credit. Treasury even threw in a bit into the bowl and performed stimulus. The last 1.5 years likely minted more "wealth" than in the previous 100 years combined (hand waving a bit) - a framework was laid to make much more money than what you put in provided you were looking at what was to come based on what was spoken.
  - wombat23 5y ago
    > Even just running correlation analysis on these various assets over the last 20 years showed that crypto was super underpriced care to elaborate?

smabie 5y ago

I think for a lot of (white collar) people, the last year and a half of covid has been the most lucrative time of their entire lives. Crazy returns across all asset classes.

tayo42 5y ago
my measly half million dollar worth of stocks "only" grew 30%. There's a significant amount of people do that much better than i did? what am i missing?
- fridif 5y ago
  I spent 1.1M on a house with my wife of course and am very happy with my purchase. Lots of land and nobody around to tell me what to do.
  - pengaru 5y ago
    > with my wife > nobody around to tell me what to do
    - matt_s 5y ago
      LOL
    - satronaut 5y ago
      burn!
    - fridif 5y ago
      The only person this reflects on is you. My life has done nothing but improve since getting married.
      - pengaru 5y ago
        > My life has done nothing but improve since getting married. Presumably you wouldn't both mention her participation and dismiss her presence in the same breath... Not sure what you're trying to say about this reflecting on me, it's just an amusing contradiction. I think it reflects well on my sense of humor.

arthurcolle 5y ago

Stocks only go up

grepfru_it 5y ago
Money printer goes brrrrrrr
blitzar 5y ago
You misspelt Stonks.

AndrewKemendo 5y ago

Yes! This has been my nagging question for years too. I make 5x the median wage in my county and my county has the second highest wage in the US. I see all these $M houses being sold left and right and I'd never feel comfortable buying a $M plus house. What gives?

leehuffman 5y ago
A ~14 year bull market, interest rates, and the last decade+ of appreciation on real estate. Everyone is flush with cash and borrowing money against a home is free.
hnick 5y ago
If you already own a home that appreciated to $800k+ then trading in to buy at $1M doesn't seem as bad. Prices seem silly to me here too (Australia) but a lot of it seems to be a combination of the perception that house prices just always go up, so you have to "get on the ladder" as they say and trade your way along. Each step doesn't seem to be a huge investment in itself. If you don't hop on, then you get left behind.
- sgt 5y ago
  But that means moving all the time. Yes you will trade yourself to the best house in the end and perhaps to a much better neighborhood, but moving can be a bit traumatizing...
  - hnick 5y ago
    One option is to move as you change jobs. But tax law here also makes loss-making investment properties attractive to people, and borrowing against equity is another thing. Interest-only loans (as interest is a deductible investment expense), plus other expenses (all the better if it's in a nice holiday destination so flights and hotels to "inspect the property" are deductible), resulting in a minor loss on rent, which is offset against your primary salary and other investments. Negative gearing like this allows people to basically zero out a house on the balance sheet and move on to buying another. Let it appreciate for a few years and you're ahead. Be a major voting base and politicians won't dare ruin your gravy train.

sneak 5y ago

A monthly payment on a mortgage of $1mm is ~$4k. That’s the same cost to rent a 2-3br in the 1k-1.4k square foot range in much of San Francisco. Napkin math suggests that it’s a reasonable payment for those >=$170k annual income, which is very common in software in the USA.

tayo42 5y ago
there's also insurance, pmi if you didn't do the down payment, hoa seems common, taxes. Thats all more then 50% of my take home. (Im not including my rsu, im hesitant to budget off that theyre so variable) And a million dollar home is cheap at the moment. Looks like the median in sf if 1.5million.
- kiklion 5y ago
  I financed 250,000 of a mortgage last year, and my mortgage payment is about $1200 a month (including taxes and insurance) Assuming taxes and insurance correspond with a % of home value, a 1 million mortgage would be about $4,800 a month. Or about $4,000 a month if talking about a $1 million dollar house with 80% financed.

jdgoesmarching 5y ago

Asset managers, banks, property developers, and just general commercial construction are all hiring mostly the same trade professionals as residential. The former are snapping up a lot of homes.

deleted 5y ago
[deleted]

zthrowaway 5y ago

As someone with two realtors in my family, my understanding is most people are living beyond their means and don’t actually have the money. But the rates are low and loans are being handed out like hot cakes. People are carelessly and knowingly going into negative equity right now and will have a big wake up call once this market stabilizes, they’re going to be stuck for quite some time. Some of these people are even tapping out their 401k in their 40s just go buy right now. I don’t know if it’s FOMO or what but it makes zero sense to me. There are those who sold at a higher price and got spring-boarded into a higher priced house but these are the exceptions.

cerved 5y ago
it worked out so great last time..
Handytinge 5y ago
I'm unsure if that passes the litmus test. In Australia, we had a royal comission into banking a few years ago, and the outcome was much tighter rules on lending, equity from assets, etc. We also don't allow people to invest in their own or family property from their superannuation (retirement fund). Yet our market has grown and grown, rising 17% or so in the last 12 months and almost 7% this quarter. Yes we have a very low interest rate currently, however the median wage to house price gap is growing bigger daily. Yet the demand still far outpaces supply.

wombat23 5y ago

I've been wondering the same. Apparently, where I live (HCOL) people don't care about ever paying off the full amount, as long as the monthly installment is low. Regulations only require that you paid off 33% of the house value after 15 years. You do need to start at 20% capitalization though, which at current prices means they need to own assets already (market risk), or have bonkers amounts of currency sitting around (inflation risk). I understand the FOMO some people must have. I wonder if ultimately there is a cascade happening, where increased valuations lead previous owners to either take new mortgages, or sell their old house, and pay more for a new one. Which creates a cycle of ever increasing prices? I've never read anything though whether such an effect exists.

kleinsch 5y ago
In HCOL areas of the US, 10% down is becoming more common with private lenders and 5% is even a possibility (or at least was pre-pandemic). Pre-pandemic we had multiple competing banks for a $1MM+ mortgage w/ 10% down.

mgkimsal 5y ago

Money is “cheap” and people think in terms of monthly payments only. Done larger builders are pitching things in terms of monthly costs only; they don’t even publish prices, just payment estimates.

lordnacho 5y ago

I don't get it either, and I'm a hedge fund manager. To my mind nothing seems like it's a sensible price in any of the cities I look at. I mean I get that there's a fair few people making good money who can buy a £2M home, but it doesn't make any sense that there are entire swathes of London where every home is like that. A quick google suggests that a £100K income is in the top 3% in this country, and top 1% is about £176K. Sure, there's a few hundred football players averaging maybe £3M a year who can thus buy maybe a £15M palace, but if you go on a property site they could each buy one and still have pages and pages of places left on the market. Similarly there's a bunch of finance/media/law people who've climbed to the top of the greasy pole and could afford a £3M house. But how many can we really be talking about? A few thousand? Ten thousand? Are there really that many MDs and law partners in London? Average income is still well under 6 figures in this country, and I know a load of doctors who are only just scraping into that category in their 30s. So if you're just scraping into 6 figs as a highly trained and rare specialist, how can there be so many houses that cost 7 figures? Even if you add parental help, how many people who are splitting inheritance between 2/3 kids is it actually going to help? I suspect a lot of people have actually drawn on all reserves: found a high income partner, got help from the parents, got a max leveraged mortgage, and possibly some have lied about their income. I get the feeling it will end badly.

thrwyoilarticle 5y ago
Being valued at £2M doesn't mean you could sell all of them for that price or that the people living in them paid £2M for them. The sort of person who could afford a nice house 3+ decades ago and spent the intervening years living in London isn't likely to move to somewhere more rural just because they can realise an investment.
- RobertKerans 5y ago
  > Being valued at £2M doesn't mean you could sell all of them for that price or that the people living in them paid £2M for them But in London these houses do sell, normally very quickly (and bullshit apartments in shiny new blocks that are in same price bracket I guess same, generally they do seem to sell, but I assume that's just parking money for tax purposes so not quite same thing).

stevehawk 5y ago

they don't have it. they're borrowing it

cmckn 5y ago

I tend to agree, but the numbers aren’t that crazy. My rent in the Seattle area is $2500/month. I could buy a reasonably-nice house here for around $750k. If you have a $150k down payment (which isn’t unrealistic to amass over ~5 years on a nice tech salary), your mortgage payment will come out to ~$3000/month. That’s not chump-change, and it’s more than my current rent; but you’re getting a lot more for your money. The numbers get a lot nicer if you’re splitting them with a partner. Am I jumping to make this particular financial decision? Nah. But it’s not wildly out of reach.

patentatt 5y ago
What about property taxes? Don't know about WA, but where I am property taxes are nearly half again as much as the principal and interest, so a hypothetical $3k (P+I) could be more like $4-4.5k in some areas.
- BizarroLand 5y ago
  I bought a $500k home in Pierce county, property taxes are 1.2% here vs .93% in King County. I'm paying about $6k/yr in property taxes and they would pay about the same +/- $1k for their $750k home.

comeonseriously 5y ago

My SO and I are both devs and we make good money. We live in a low CoL area and basically live on one income. We've been tightening our belt even more because everything is so crazy. We paid off our house recently but it was about 14% of our income. There's NO WAY I would move right now and buy a house and have it 30, 40 or 50% of our income. I don't understand how people who make the median are able to stay afloat right now.