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There's no way in hell it's close to 8x. Just crunched the numbers, and an 8x mortgage would exceed my monthly take home. I felt pretty uncomfortable at 2.5x.

There's no way in hell it's close to 8x. Just crunched the numbers, and an 8x mortgage would exceed my monthly take home. I felt pretty uncomfortable at 2.5x. I feel a lot of people are probably extending out to 4 or even 5, but 8 would be irresponsible and I doubt you could even find a lender for that.

gspr 5y ago
I'm not saying it makes up for the difference in the arguments, but please note that people seem to be talking past each other in this thread by talking about home price to income ratios and mortgage to income ratios without making a distinction.
dalyons 5y ago
I should have provided these in my first comment: Median-income-to-house price by state : https://constructioncoverage.com/research/cities-with-highest-home-price-to-income-ratios-2021 https://constructioncoverage.com/research/cities-with-highes... As you can see California is at a whopping 8.9x US overall: https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco... Pushing 7x.
- silisili 5y ago
  Damn, I completely misunderstood what you were saying, sorry! For some reason I was reading the comment that the average homebuyer is paying 8x their salary for a house. What you've been comparing are median incomes to sales prices. A useful indicator, but not capturing what people are actually paying - it is entirely possible the 'medians' are priced out, especially with such constrained supply. That makes me feel way less crazy now... apologies again.
  - dalyons 5y ago
    no worries at all. Even though as you said it's "not capturing what people are actually paying" it's related, and still horrifying to me, as a measure of overall housing affordability. Esp when you look at places like vancouver, sydney, melbourne.... At 10x I cant understand how the market keeps going - how do home ownership rates stay so high? how are people affording these multiples? It just doesnt make sense to me how it can keep going. To your point this measure includes the people who cant afford to buy at all , but theres still enough ownership % overall that it doesnt add up to me.
jcadam 5y ago
I'm at 2.8x and no sir, I don't like it. At least I got 2.75% on my mortgage. Though I have a feeling we're heading back to 2008ish levels of job insecurity so maybe I'll end up homeless after all.
danachow 5y ago
Maybe you miscrunched? A 5x mortgage over gross pay should be just over 30% of monthly gross take home. Maybe too much for some, but not absolutely irresponsible - especially if you choose to stay in a stable housing market. 2.5x is completely ridiculous to expect - that’s going to be far below rental payments in most places that anybody would want to live. Its definitely not the norm. It’s obtainable in some areas of the northeast like Pittsburgh and the Midwest. But usually the catch is property taxes are outrageous.
- Beached 5y ago
  but total cost of home ownership is supposed to be 33% of take home. how do you pay electric, gas, internet, trash, water, sewer, umbrella insurance, AND routine maintenance on just 3%?
  - javagram 5y ago
    Utilities normally wouldn’t be included in the 33% of take home rule - the 33% rule applies to renting an apartment too, where most of the items you listed except trash are also separate costs not included in the 33%. (Also the 1/3 rule is of gross income not take home.)
- inetknght 5y ago
  > 2.5x is completely ridiculous to expect - that’s going to be far below rental payments in most places that anybody would want to live. That's because rental prices are ridiculous.
- silisili 5y ago
  It's really hard to compare because of how rates doubled in a period of 2 months. At today's rates, which I'll enter at 5.2%, A person making 200k at 8x is buying a house worth 1.6 million dollars. Assuming a 320k down payment(ha), 20k in taxes, and 5k in insurance, the monthly payment comes out to over 9000 a month. I don't think anyone in CA at 200k is taking home that much monthly, but maybe my math is off. I think 2.5x is also probably not the norm, but I'm extremely conservative with money and what I went with. 4 or 5 I can believe, but in today's market with today's rates, I can't see how 8x is even possible.
mijowi 5y ago
Prior to a recent promotion I was at ~6.7x. I still had some frivolous spending on going out and such, but I’m a bachelor. This was also before the recent inflation rise. Now I’m at 5x. Do I feel comfortable? Mostly… I work for the government so I’m not worried about losing my job, but rising inflation has eroded away the safety buffer I hoped to have with the increased salary. I’m concerned about how an expensive emergency situation could affect me.
slyall 5y ago
Ratio is usually calculated on household income. So it assumes closer to two incomes per household. Where I live (Auckland, New Zealand) the average household income is just over $NZ 140k, while the average house price is around $NZ 1.4m.[1] https://www.stuff.co.nz/life-style/homed/real-estate/127803109/drastic-fall-in-nz-housing-affordability-takes-it-to-worst-level-on-record https://www.stuff.co.nz/life-style/homed/real-estate/1278031...

gspr 5y ago

I'm not saying it makes up for the difference in the arguments, but please note that people seem to be talking past each other in this thread by talking about home price to income ratios and mortgage to income ratios without making a distinction.

dalyons 5y ago

I should have provided these in my first comment: Median-income-to-house price by state : https://constructioncoverage.com/research/cities-with-highest-home-price-to-income-ratios-2021 https://constructioncoverage.com/research/cities-with-highes... As you can see California is at a whopping 8.9x US overall: https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco... Pushing 7x.

silisili 5y ago
Damn, I completely misunderstood what you were saying, sorry! For some reason I was reading the comment that the average homebuyer is paying 8x their salary for a house. What you've been comparing are median incomes to sales prices. A useful indicator, but not capturing what people are actually paying - it is entirely possible the 'medians' are priced out, especially with such constrained supply. That makes me feel way less crazy now... apologies again.
- dalyons 5y ago
  no worries at all. Even though as you said it's "not capturing what people are actually paying" it's related, and still horrifying to me, as a measure of overall housing affordability. Esp when you look at places like vancouver, sydney, melbourne.... At 10x I cant understand how the market keeps going - how do home ownership rates stay so high? how are people affording these multiples? It just doesnt make sense to me how it can keep going. To your point this measure includes the people who cant afford to buy at all , but theres still enough ownership % overall that it doesnt add up to me.

jcadam 5y ago

I'm at 2.8x and no sir, I don't like it. At least I got 2.75% on my mortgage. Though I have a feeling we're heading back to 2008ish levels of job insecurity so maybe I'll end up homeless after all.

danachow 5y ago

Maybe you miscrunched? A 5x mortgage over gross pay should be just over 30% of monthly gross take home. Maybe too much for some, but not absolutely irresponsible - especially if you choose to stay in a stable housing market. 2.5x is completely ridiculous to expect - that’s going to be far below rental payments in most places that anybody would want to live. Its definitely not the norm. It’s obtainable in some areas of the northeast like Pittsburgh and the Midwest. But usually the catch is property taxes are outrageous.

Beached 5y ago
but total cost of home ownership is supposed to be 33% of take home. how do you pay electric, gas, internet, trash, water, sewer, umbrella insurance, AND routine maintenance on just 3%?
- javagram 5y ago
  Utilities normally wouldn’t be included in the 33% of take home rule - the 33% rule applies to renting an apartment too, where most of the items you listed except trash are also separate costs not included in the 33%. (Also the 1/3 rule is of gross income not take home.)
inetknght 5y ago
> 2.5x is completely ridiculous to expect - that’s going to be far below rental payments in most places that anybody would want to live. That's because rental prices are ridiculous.
silisili 5y ago
It's really hard to compare because of how rates doubled in a period of 2 months. At today's rates, which I'll enter at 5.2%, A person making 200k at 8x is buying a house worth 1.6 million dollars. Assuming a 320k down payment(ha), 20k in taxes, and 5k in insurance, the monthly payment comes out to over 9000 a month. I don't think anyone in CA at 200k is taking home that much monthly, but maybe my math is off. I think 2.5x is also probably not the norm, but I'm extremely conservative with money and what I went with. 4 or 5 I can believe, but in today's market with today's rates, I can't see how 8x is even possible.

mijowi 5y ago

Prior to a recent promotion I was at ~6.7x. I still had some frivolous spending on going out and such, but I’m a bachelor. This was also before the recent inflation rise. Now I’m at 5x. Do I feel comfortable? Mostly… I work for the government so I’m not worried about losing my job, but rising inflation has eroded away the safety buffer I hoped to have with the increased salary. I’m concerned about how an expensive emergency situation could affect me.

slyall 5y ago

Ratio is usually calculated on household income. So it assumes closer to two incomes per household. Where I live (Auckland, New Zealand) the average household income is just over $NZ 140k, while the average house price is around $NZ 1.4m.[1] https://www.stuff.co.nz/life-style/homed/real-estate/127803109/drastic-fall-in-nz-housing-affordability-takes-it-to-worst-level-on-record https://www.stuff.co.nz/life-style/homed/real-estate/1278031...