6 ms·

Sure, but the same inflation that was driving up mortgage rates was also reducing the real value of the balance of the loan. You can't just look at rates here.

• treis 5y ago
  We're talking about affordability here. And my point is that to determine if something is affordable you have to look at monthly payment and not the purchase price.
  • mwigdahl 5y ago
    OK, sure. But inflation has an effect on the monthly payment as well. Assuming stagnant real wages (pay raises pace inflation exactly) if inflation is at 7% but you're paying 10% interest, by the end of a 30-year loan your fixed payment is effectively 8x smaller in real terms than it was at the start of the loan. In other words, in that environment it was feasible to stretch to buy a home even at a high interest rate, because you knew that every year your fixed payment would decrease significantly as a share of your income.
  • throwawaycities 5y ago
    By that measure you also have to take into account that while you are renting to save up for the down payment you are paying a rent much greater in proportioning to your income. You are making a car payment much greater in proportion to your income. You also very likely are paying a student loan payment that did not exist for the 1970 home buyer. It is much more difficult to save up for even the down payment and more difficult to get approved for a home loan because you already have significant debt which the 1970 home buyer did not. In totality the debt driven economy makes homes less affordable…it’s not just about a monthly payment.