10 ms·

While it doesn't directly affect the average person's purchasing power, the same dramatic increase is happening in other asset values as well. [0] One interesti

by gp 5y ago

While it doesn't directly affect the average person's purchasing power, the same dramatic increase is happening in other asset values as well. [0] One interesting thing to note is that 2019 EV / EBITDA values were already "high," before the coronavirus was spreading. I suspect these two phenomena have different causes overall, but low interest rates are a common factor that cause all asset prices to increase. On the housing side, I suspect consumers purchase the house that their cashflow can comfortably support, not necessarily the one where they believe it is correctly valued, because the assumption that house values only increase means purchasing a well constructed house is almost never a "bad deal." I'm not sure what the "solution," is, but knowing that voters hate when their home values fall does not give me confidence that prices will decrease in the long term. [0] https://www.statista.com/statistics/953641/sandp-500-ev-to-ebitda-multiples/ https://www.statista.com/statistics/953641/sandp-500-ev-to-e...

pfisherman 5y ago
This jibes with my experience of buying a house about 6 months ago. My reasoning was that we were experiencing rapid asset inflation fueled by low interest rates and COVID stimulus, and our cash was losing its value relative to housing by the month. I figured that this propping up of asset prices is likely to continue, as any administration that lets housing / 401k values collapse will get massacred in elections.
- splistud 5y ago
  People are working, unemployment has been falling like a stone since 2017. That money is going to go somewhere (and for most that is not 'the bank'). It's going to get spent or put into investments. We're going to continue to see strong commodity prices (and most of these have been rising into the headwind of a stronger dollar) until unemployment creeps up, or real wages falls too far behind inflation rate. I think the increased commodity supply that would normally rebalance pricing before demand does is going to be delayed. Why? Though interest rates are low, loans aren't going into commodity capital projects (because risk and returns ratios don't look good to lenders when compared to inflation rate? not sure).
  - munk-a 5y ago
    I think there is an issue with that logic - it doesn't account for the ever accelerating wealth inequality. People are working a ton right now - and creating massive amounts of value. It's so freaking easy to get consumer goods delivered next day that we're all forgetting that this service would likely cost fifty+ dollars in the early 90's - there are similar trends across the economy. The issue is that a lot of that created value is being isolated out of circulation and is pooling in investors that can, at a moments notice, pull the rug out of a number of great companies if they sense a panic. Wealth inequality creates the opportunity for instability in the form of extreme sudden market rushes alongside reducing the purchasing power of most folks. We're in a rough spot.
    - splistud 5y ago
      Very complex situation, and we likely agree on some of it. I won't rehash that part. Some seldom-described (or taboo) opinions: Part of the dislocation (behavior inconsistent with historical macro economics 101) is caused by dollars exiting the system faster than they used to. Remember the graphics/vids we all saw of people passing dollars around the community and the total supply expands? Now, good portions of those dollars are naturally shunted out of our system to where the manufacturing took place. Worse, some of the money in the graphics that went to Bill's hardware store disappears (because Bill's store is still in town, but he has a subsidiary in a foreign country and captures most of his revenue there). Then there's income inequality. In addition to the depredations of two generations of greedy bastards, we have to understand that we import (legally or not) way too much unskilled/lowskilled labor, and that this has a negative affect on the entire bottom half (more-or-less) of the wage structure in our nation. It has a salutory affect (though i think one that is smaller than some imagine) on the top half, in that pressure on wages for unskilled to middling skilled workers results in more return on work and investment at the top of corporate structures, and other fields that compete with them for talent.
  - onlyrealcuzzo 5y ago
    The US population grows by almost 2M per year - almost 40M since 2000. The workforce since 2000 has only grown by 17M. Workforce participation is down.
- johntiger1 5y ago
  Why not invest in the market then?
  - throw_nbvc1234 5y ago
    Two, somewhat hypothetical questions, I'd have to answer first. What would happen to the if everyone suddenly agreed that there was a hard-cap to how much the global economy can grow; Especially if that cap was somewhat near to where we are today? How do you solve the core problem of "climate change" (which I'll define here as the unsustainable use of natural resources) without essentially implementing a hard cap of the global economy. This question isn't just about electricity versus oil. It's about trash, disposable (or planned obsolescence) consumer goods, fish/wildlife, forests, ect... You could interpret the change in climate is just a single symptom of this runaway train. And any effort to pull the brakes is likely to cause the whole train to derail and crash. Maybe we'll make it to mars before then. Or maybe there will be a massive decrease in human life (war or another pandemic) and this whole question will solve itself.
  - mywittyname 5y ago
    You can do both. But housing has the benefit of high leverage-to-cost ratio. One can get 20% leverage at ~4% on a stock portfolio. One can get 2000% leverage (5% down) at 2.9% on a house. Granted, the leverage on the house requires paying interest and 1/3600th of principle each month. But, unlike the stock portfolio, it's not callable.
    - shados 5y ago
      The math for this ends up being extremely complex. The leverage is one part, and a big one. You have to account for closing costs (especially when selling), and uncertainty around how long you'll stay. But you could theoretically rent it out. But as we've seen, some cities could keep an eviction moratorium going and that could be costly. Housing in some areas skyrocketed in values, but you could be buying a lemon since "no inspection contingency" is the norm in hot markets. Taxes and HoA fees can go up a fair bit too, and there's maintenance. There's a few psychological factors that don't factor in the math, like how you may do renovations that don't translate 1:1 to home value that you wouldn't do if you're renting. On the other hand, rent does go up, generally faster than property taxes. It's really a toss up based on a lot of variables, but generally, yeah, home ownership will come up ahead. Not always though. While if you invest in a total market index, you're main risk is the entire country tanking, it's different with a home. You're gambling on that ONE PARTICULAR HOME in one particular place. That's a lot riskier than an index fund. But you get to make holes in the walls without anyone yelling at you, and that's a big plus.
itake 5y ago
I suspect that dual income families could be a contributing factor in increased home prices of single-family homes. Even 'worse' is dual income, no kid families that are delaying and skipping child costs. Thus with "double" the cash flow and shared costs, couples afford higher prices at a lower cost.
- alexpotato 5y ago
  I've often wondered about this myself. E.g. it's a lot easier to have two working people in a couple make $300K total vs only one person making $300K. It would be interesting to go back in time and correlate the rise of dual working couples vs housing prices adjusted for other factors e.g. inflation
  - itake 5y ago
    At least in tech hubs, the "one person making $300k" is marrying up with another person that makes $300k, resulting in a $600k household and $1-3M home prices.
    - wombatpm 5y ago
      Which then leads to the dual income trap.
    - shados 5y ago
      Yup. Don't forget the whole "frequently choose not to have a kid" part, and it becomes extremely one sided. Dual income families aren't new, but 2 high earners professionals with no kids aren't just the occasional doctor/dentist/lawyer couples anymore. I'm a software engineer myself in one of the high paying tech hubs, and married the same. When we went to look for a home and toured open houses, all you saw were pairs of young couples wearing Google, Microsoft and Facebook swags. Sure, I didn't personally ask every single one of them where they worked, but I'd venture that a non-zero amount of these couples were "Tech DINKs", like us. The average person simply can't compete with that. Add that in the urban areas these folks are less likely to want a big car, some may be happier playing Final Fantasy 14 during vacations than traveling across the world (I know plenty of travelers, but there's certainly a lot of "low cost" vacationers in the industry), and some level of financial literacy (common for people who get compensated with RSUs), and it's absolutely one sided. With that said, median home prices have only increased a little faster than inflation. When you account for interest rates tanking + inflation, a median home in 2021 is the same price and sometimes cheaper than it was in 2005 (data for the last few months is harder to find, and there's been a unusual spike, so it may not be quite true right now, but it was just a few months ago). The bigger problem is that everyone wants to live in the same place (usually in urban centers, where the jobs are, and where you don't have to drive an hour and a half to work). So prices where people want to be have increased higher than median. I'd expect people are more ok with paying a larger portion of their income to live where they want to be. Even as extremely high earner DINKs, housing will eat up a good chunk of our cash flow if we feel like blowing it all to live in Manhattan in a condo that doesn't suck.
dpweb 5y ago
When it's all assets going up, it's not the assets cost more, it's the dollar is worth less. So for all the help and assistance. Housing is LESS affordable than ever before. You cannot infuse trillions of extra dollars into the economy without inflation. There's no magic pill - there must be consequences.
- the_gastropod 5y ago
  I know this is a common belief in the hilarious world of crypto enthusiasts. But, y'know, we measure inflation, and what you're suggesting is just flat out not true. https://tradingeconomics.com/united-states/inflation-cpi https://tradingeconomics.com/united-states/inflation-cpi
  - markus_zhang 5y ago
    It's more like inflation of asset prices.
    - the_gastropod 5y ago
      I take much less issue with that assertion. That high housing prices are because the dollar is worth less is what I find rather absurd. Inflation is measurable. And you have to embrace some real quacky conspiratorial thinking to go down the rabbit hole that dpweb seems to have gone down.
      - larksimian 5y ago
        Inflation is not just about measuring prices. It is a really complicated number synthesized from both price signals(arguably the most objective data), surveys and ... educated opinions. For instance, economists just kinda have to put a number on what new technologies are worth. Modern car maybe costs more dollars, but you're also getting a better product type issues. Inflation is based both on measurements and on judgement calls by economists responsible for calculating it. It's more objective than LIBOR or some crap, but (way way) less objective than the price of something on the stock market, or some other pure price signal. 'Asset' inflation isn't even part of CPI(like stock, cost of owning a house, tho rental is), is it? It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming.
helen___keller 5y ago
> On the housing side, I suspect consumers purchase the house that their cashflow can comfortably support, not necessarily the one where they believe it is correctly valued, because the assumption that house values only increase means purchasing a well constructed house is almost never a "bad deal." I'd agree with this. I think housing in my area is wildly overpriced, but I still bought a 100 year old condo for a solid million. Compared to renting, I got double the space, plus parking, plus a private garden, plus an outdoor patio, and my monthly costs went up about 25%.
- galangalalgol 5y ago
  Is there a difference in the property tax there for multifamily vs single family dwellings? Around here people pay almost double their mortgage in property taxes for a single family dwelling, but landlords have managed to get much lower taxes for multifamily dwellings.
  - helen___keller 5y ago
    In my municipality I'm not aware of a difference between multifamily vs single family, but there aren't many single families anyways. Property tax is absurdly low, with a very nice deduction for owner-occupied units. My effective tax rate is around 0.3% (Municipality: Cambridge, MA)
    - madars 5y ago
      Cambridge is atypical: it has tons of biotech, FAANG offices, etc to tax, so the city ends up having one of the lowest residential property tax rates in the state. In fact, Cambridge's residential rate is almost 2x less than those of each of its neighbors (Arlington, Belmont, Boston, Somerville, Watertown. https://joeshimkus.com/MA-Tax-Rates.aspx https://joeshimkus.com/MA-Tax-Rates.aspx)
      - helen___keller 5y ago
        yep, and to GP's point when i was looking for housing, my budget was higher in cambridge for precisely this reason
useful 5y ago
Home prices are a function of monthly costs. As much as people want to compare the value of a home from year to year, in every instance, I've seen values reflect to monthly spending power. I would love to see some estimate that takes more into account like household income, tax breaks, and interest rates. If I have a interest deduction, my relative taxes are lower. If I have children, my taxes are lower. If I have historic property, my taxes are lower. If I have solar, my monthly bill is lower. All these things make owning a home easier and allows people to buy more home. Education is another example, prices largely mirror federal subsidized loan values. I'm not arguing that government should get out of housing, people should realize that the value of something is relative to the demand especially when the supply is largely fixed or has linear growth.
- wtvanhest 5y ago
  I agree with your comment, and just want to add that interest rate changes alone can explain a lot of the appreciation. If you have the exact same income and rates are at today's 3% vs 2008's 6%, the payments on a $1.0MM home mortgage would be $4.2K vs $6.0k. The difference between those two payments is about $40k/year of gross income difference. A person in 2021 with the exact same income as 2008 would be paying the same for a $1.4M mortgage per month as the person in 2008 at a $1.0M mortgage. I don't own a home, so I'm not saying this to justify my purchase, but if I just take the info in the graph, I actually wonder whether there is a lot more room to go in the market. I wonder if we are looking at another 20-30% appreciation before the top? I have no idea. https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US
- shados 5y ago
  I don't have all of the math for all the scenarios you describe, but still, overall you're completely correct. If you account for inflation and interest rates, and look at median home price, a home earlier this year was CHEAPER than home in 2005. Roughly the same monthly payments before accounting for inflation, because of the interest rates (6.X% vs 2.5-2.8%ish). That alone makes a huge difference. People are also becoming more financially literate. Once folks are able to crunch all of the numbers on their own, start calculating how much rent costs, how much money they will make from asset valuation, how much they can save from using HELOCs instead of credit or other types of loans, they're willing to spend more, too. There's the tax deductions, but that got gutted, so it's not that big anymore. one can say the down payment increases, but it increased slower than the market did, so if you just sat on investments since 2005, you can make a BIGGER down payment now than then, proportionally. At current interest rates, even with PMI, you're potentially better off doing a 3% + PMI than putting a large down payment (unless you're expecting a market apocalypse the likes of which the US has never seen). We could crank up the interest rates to 10% and home values would tank. It wouldn't reduce monthly home costs any though.

by gp 5y ago

pfisherman 5y ago

This jibes with my experience of buying a house about 6 months ago. My reasoning was that we were experiencing rapid asset inflation fueled by low interest rates and COVID stimulus, and our cash was losing its value relative to housing by the month. I figured that this propping up of asset prices is likely to continue, as any administration that lets housing / 401k values collapse will get massacred in elections.

splistud 5y ago
People are working, unemployment has been falling like a stone since 2017. That money is going to go somewhere (and for most that is not 'the bank'). It's going to get spent or put into investments. We're going to continue to see strong commodity prices (and most of these have been rising into the headwind of a stronger dollar) until unemployment creeps up, or real wages falls too far behind inflation rate. I think the increased commodity supply that would normally rebalance pricing before demand does is going to be delayed. Why? Though interest rates are low, loans aren't going into commodity capital projects (because risk and returns ratios don't look good to lenders when compared to inflation rate? not sure).
- munk-a 5y ago
  I think there is an issue with that logic - it doesn't account for the ever accelerating wealth inequality. People are working a ton right now - and creating massive amounts of value. It's so freaking easy to get consumer goods delivered next day that we're all forgetting that this service would likely cost fifty+ dollars in the early 90's - there are similar trends across the economy. The issue is that a lot of that created value is being isolated out of circulation and is pooling in investors that can, at a moments notice, pull the rug out of a number of great companies if they sense a panic. Wealth inequality creates the opportunity for instability in the form of extreme sudden market rushes alongside reducing the purchasing power of most folks. We're in a rough spot.
  - splistud 5y ago
    Very complex situation, and we likely agree on some of it. I won't rehash that part. Some seldom-described (or taboo) opinions: Part of the dislocation (behavior inconsistent with historical macro economics 101) is caused by dollars exiting the system faster than they used to. Remember the graphics/vids we all saw of people passing dollars around the community and the total supply expands? Now, good portions of those dollars are naturally shunted out of our system to where the manufacturing took place. Worse, some of the money in the graphics that went to Bill's hardware store disappears (because Bill's store is still in town, but he has a subsidiary in a foreign country and captures most of his revenue there). Then there's income inequality. In addition to the depredations of two generations of greedy bastards, we have to understand that we import (legally or not) way too much unskilled/lowskilled labor, and that this has a negative affect on the entire bottom half (more-or-less) of the wage structure in our nation. It has a salutory affect (though i think one that is smaller than some imagine) on the top half, in that pressure on wages for unskilled to middling skilled workers results in more return on work and investment at the top of corporate structures, and other fields that compete with them for talent.
- onlyrealcuzzo 5y ago
  The US population grows by almost 2M per year - almost 40M since 2000. The workforce since 2000 has only grown by 17M. Workforce participation is down.
johntiger1 5y ago
Why not invest in the market then?
- throw_nbvc1234 5y ago
  Two, somewhat hypothetical questions, I'd have to answer first. What would happen to the if everyone suddenly agreed that there was a hard-cap to how much the global economy can grow; Especially if that cap was somewhat near to where we are today? How do you solve the core problem of "climate change" (which I'll define here as the unsustainable use of natural resources) without essentially implementing a hard cap of the global economy. This question isn't just about electricity versus oil. It's about trash, disposable (or planned obsolescence) consumer goods, fish/wildlife, forests, ect... You could interpret the change in climate is just a single symptom of this runaway train. And any effort to pull the brakes is likely to cause the whole train to derail and crash. Maybe we'll make it to mars before then. Or maybe there will be a massive decrease in human life (war or another pandemic) and this whole question will solve itself.
- mywittyname 5y ago
  You can do both. But housing has the benefit of high leverage-to-cost ratio. One can get 20% leverage at ~4% on a stock portfolio. One can get 2000% leverage (5% down) at 2.9% on a house. Granted, the leverage on the house requires paying interest and 1/3600th of principle each month. But, unlike the stock portfolio, it's not callable.
  - shados 5y ago
    The math for this ends up being extremely complex. The leverage is one part, and a big one. You have to account for closing costs (especially when selling), and uncertainty around how long you'll stay. But you could theoretically rent it out. But as we've seen, some cities could keep an eviction moratorium going and that could be costly. Housing in some areas skyrocketed in values, but you could be buying a lemon since "no inspection contingency" is the norm in hot markets. Taxes and HoA fees can go up a fair bit too, and there's maintenance. There's a few psychological factors that don't factor in the math, like how you may do renovations that don't translate 1:1 to home value that you wouldn't do if you're renting. On the other hand, rent does go up, generally faster than property taxes. It's really a toss up based on a lot of variables, but generally, yeah, home ownership will come up ahead. Not always though. While if you invest in a total market index, you're main risk is the entire country tanking, it's different with a home. You're gambling on that ONE PARTICULAR HOME in one particular place. That's a lot riskier than an index fund. But you get to make holes in the walls without anyone yelling at you, and that's a big plus.

itake 5y ago

I suspect that dual income families could be a contributing factor in increased home prices of single-family homes. Even 'worse' is dual income, no kid families that are delaying and skipping child costs. Thus with "double" the cash flow and shared costs, couples afford higher prices at a lower cost.

alexpotato 5y ago
I've often wondered about this myself. E.g. it's a lot easier to have two working people in a couple make $300K total vs only one person making $300K. It would be interesting to go back in time and correlate the rise of dual working couples vs housing prices adjusted for other factors e.g. inflation
- itake 5y ago
  At least in tech hubs, the "one person making $300k" is marrying up with another person that makes $300k, resulting in a $600k household and $1-3M home prices.
  - wombatpm 5y ago
    Which then leads to the dual income trap.
  - shados 5y ago
    Yup. Don't forget the whole "frequently choose not to have a kid" part, and it becomes extremely one sided. Dual income families aren't new, but 2 high earners professionals with no kids aren't just the occasional doctor/dentist/lawyer couples anymore. I'm a software engineer myself in one of the high paying tech hubs, and married the same. When we went to look for a home and toured open houses, all you saw were pairs of young couples wearing Google, Microsoft and Facebook swags. Sure, I didn't personally ask every single one of them where they worked, but I'd venture that a non-zero amount of these couples were "Tech DINKs", like us. The average person simply can't compete with that. Add that in the urban areas these folks are less likely to want a big car, some may be happier playing Final Fantasy 14 during vacations than traveling across the world (I know plenty of travelers, but there's certainly a lot of "low cost" vacationers in the industry), and some level of financial literacy (common for people who get compensated with RSUs), and it's absolutely one sided. With that said, median home prices have only increased a little faster than inflation. When you account for interest rates tanking + inflation, a median home in 2021 is the same price and sometimes cheaper than it was in 2005 (data for the last few months is harder to find, and there's been a unusual spike, so it may not be quite true right now, but it was just a few months ago). The bigger problem is that everyone wants to live in the same place (usually in urban centers, where the jobs are, and where you don't have to drive an hour and a half to work). So prices where people want to be have increased higher than median. I'd expect people are more ok with paying a larger portion of their income to live where they want to be. Even as extremely high earner DINKs, housing will eat up a good chunk of our cash flow if we feel like blowing it all to live in Manhattan in a condo that doesn't suck.

dpweb 5y ago

When it's all assets going up, it's not the assets cost more, it's the dollar is worth less. So for all the help and assistance. Housing is LESS affordable than ever before. You cannot infuse trillions of extra dollars into the economy without inflation. There's no magic pill - there must be consequences.

the_gastropod 5y ago
I know this is a common belief in the hilarious world of crypto enthusiasts. But, y'know, we measure inflation, and what you're suggesting is just flat out not true. https://tradingeconomics.com/united-states/inflation-cpi https://tradingeconomics.com/united-states/inflation-cpi
- markus_zhang 5y ago
  It's more like inflation of asset prices.
  - the_gastropod 5y ago
    I take much less issue with that assertion. That high housing prices are because the dollar is worth less is what I find rather absurd. Inflation is measurable. And you have to embrace some real quacky conspiratorial thinking to go down the rabbit hole that dpweb seems to have gone down.
    - larksimian 5y ago
      Inflation is not just about measuring prices. It is a really complicated number synthesized from both price signals(arguably the most objective data), surveys and ... educated opinions. For instance, economists just kinda have to put a number on what new technologies are worth. Modern car maybe costs more dollars, but you're also getting a better product type issues. Inflation is based both on measurements and on judgement calls by economists responsible for calculating it. It's more objective than LIBOR or some crap, but (way way) less objective than the price of something on the stock market, or some other pure price signal. 'Asset' inflation isn't even part of CPI(like stock, cost of owning a house, tho rental is), is it? It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming.

helen___keller 5y ago

> On the housing side, I suspect consumers purchase the house that their cashflow can comfortably support, not necessarily the one where they believe it is correctly valued, because the assumption that house values only increase means purchasing a well constructed house is almost never a "bad deal." I'd agree with this. I think housing in my area is wildly overpriced, but I still bought a 100 year old condo for a solid million. Compared to renting, I got double the space, plus parking, plus a private garden, plus an outdoor patio, and my monthly costs went up about 25%.

galangalalgol 5y ago
Is there a difference in the property tax there for multifamily vs single family dwellings? Around here people pay almost double their mortgage in property taxes for a single family dwelling, but landlords have managed to get much lower taxes for multifamily dwellings.
- helen___keller 5y ago
  In my municipality I'm not aware of a difference between multifamily vs single family, but there aren't many single families anyways. Property tax is absurdly low, with a very nice deduction for owner-occupied units. My effective tax rate is around 0.3% (Municipality: Cambridge, MA)
  - madars 5y ago
    Cambridge is atypical: it has tons of biotech, FAANG offices, etc to tax, so the city ends up having one of the lowest residential property tax rates in the state. In fact, Cambridge's residential rate is almost 2x less than those of each of its neighbors (Arlington, Belmont, Boston, Somerville, Watertown. https://joeshimkus.com/MA-Tax-Rates.aspx https://joeshimkus.com/MA-Tax-Rates.aspx)
    - helen___keller 5y ago
      yep, and to GP's point when i was looking for housing, my budget was higher in cambridge for precisely this reason

useful 5y ago

Home prices are a function of monthly costs. As much as people want to compare the value of a home from year to year, in every instance, I've seen values reflect to monthly spending power. I would love to see some estimate that takes more into account like household income, tax breaks, and interest rates. If I have a interest deduction, my relative taxes are lower. If I have children, my taxes are lower. If I have historic property, my taxes are lower. If I have solar, my monthly bill is lower. All these things make owning a home easier and allows people to buy more home. Education is another example, prices largely mirror federal subsidized loan values. I'm not arguing that government should get out of housing, people should realize that the value of something is relative to the demand especially when the supply is largely fixed or has linear growth.

wtvanhest 5y ago
I agree with your comment, and just want to add that interest rate changes alone can explain a lot of the appreciation. If you have the exact same income and rates are at today's 3% vs 2008's 6%, the payments on a $1.0MM home mortgage would be $4.2K vs $6.0k. The difference between those two payments is about $40k/year of gross income difference. A person in 2021 with the exact same income as 2008 would be paying the same for a $1.4M mortgage per month as the person in 2008 at a $1.0M mortgage. I don't own a home, so I'm not saying this to justify my purchase, but if I just take the info in the graph, I actually wonder whether there is a lot more room to go in the market. I wonder if we are looking at another 20-30% appreciation before the top? I have no idea. https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US
shados 5y ago
I don't have all of the math for all the scenarios you describe, but still, overall you're completely correct. If you account for inflation and interest rates, and look at median home price, a home earlier this year was CHEAPER than home in 2005. Roughly the same monthly payments before accounting for inflation, because of the interest rates (6.X% vs 2.5-2.8%ish). That alone makes a huge difference. People are also becoming more financially literate. Once folks are able to crunch all of the numbers on their own, start calculating how much rent costs, how much money they will make from asset valuation, how much they can save from using HELOCs instead of credit or other types of loans, they're willing to spend more, too. There's the tax deductions, but that got gutted, so it's not that big anymore. one can say the down payment increases, but it increased slower than the market did, so if you just sat on investments since 2005, you can make a BIGGER down payment now than then, proportionally. At current interest rates, even with PMI, you're potentially better off doing a 3% + PMI than putting a large down payment (unless you're expecting a market apocalypse the likes of which the US has never seen). We could crank up the interest rates to 10% and home values would tank. It wouldn't reduce monthly home costs any though.