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Ah, yes-- I forgot to mention that. I was astounded when my father mentioned recently that when they bought the home I grew up in, the interest rate was 12%! R

Ah, yes-- I forgot to mention that. I was astounded when my father mentioned recently that when they bought the home I grew up in, the interest rate was 12%! Right now, living in a suburb with people from the nearby city fleeing for greener pastures in my area or further out still, the paper value of my home is up 10% in a year-- as you say, making any loan on nearby homes effectively a negative rate. Whereas using the interest rates my parents paid, a mortgage today for the same amount as they had, at their interest rates, would have 3x the monthly payment. The house itself is about 3.5x the original price, making the gap between effective living costs much smaller than the nominal sticker price on the house would make it seem. The "don't buy a home mortgage for more than 2x-3x you annual salary" was advice formed at a time of much higher interest rates.

parineum 5y ago
> I was astounded when my father mentioned recently that when they bought the home I grew up in, the interest rate was 12%! The prices of houses adjust very quickly to changes in interest rates because housing prices are based on what an "affordable" mortgage payment for the market is. Housing prices change to make that math work. Interest rates and housing prices only matter to people who are buying a house that aren't selling one at the same time. Low interest rates are bad for first time home buyers and investors. > The "don't buy a home mortgage for more than 2x-3x you annual salary" was advice formed at a time of much higher interest rates. Also, when that adage was coined, the cost of the "essentials" required to live hasn't gone up as much so people have more of their income to spend on housing.
- ineedasername 5y ago
  True: people can afford $X/month. The proportion that goes towards interest is less relevant. In fact, I'd prefer a lower sticker price & higher interest rate to get to $X. That way when interest rates inevitably drop at some point I can refi at the lower rate and get the partial benefits of both lower sticker $ and interest %.
  - quadrangle 5y ago
    Low interest rates and high price is also quite simply a huge profit for existing homeowners at the expense of new homeowners, all pushed by banks. It's almost as if macroeconomics is a real topic after all! /s

parineum 5y ago

> I was astounded when my father mentioned recently that when they bought the home I grew up in, the interest rate was 12%! The prices of houses adjust very quickly to changes in interest rates because housing prices are based on what an "affordable" mortgage payment for the market is. Housing prices change to make that math work. Interest rates and housing prices only matter to people who are buying a house that aren't selling one at the same time. Low interest rates are bad for first time home buyers and investors. > The "don't buy a home mortgage for more than 2x-3x you annual salary" was advice formed at a time of much higher interest rates. Also, when that adage was coined, the cost of the "essentials" required to live hasn't gone up as much so people have more of their income to spend on housing.

ineedasername 5y ago
True: people can afford $X/month. The proportion that goes towards interest is less relevant. In fact, I'd prefer a lower sticker price & higher interest rate to get to $X. That way when interest rates inevitably drop at some point I can refi at the lower rate and get the partial benefits of both lower sticker $ and interest %.
- quadrangle 5y ago
  Low interest rates and high price is also quite simply a huge profit for existing homeowners at the expense of new homeowners, all pushed by banks. It's almost as if macroeconomics is a real topic after all! /s