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> Housing is another red herring, of course, because the average new American home is 2x bigger now than it was in the 70s. Roughly speaking 1 square foot of th

> Housing is another red herring, of course, because the average new American home is 2x bigger now than it was in the 70s. Roughly speaking 1 square foot of the average home costs exactly the same as it used to in the 1970s. [1] And the average family has become smaller. So yes, housing is more expensive in big cities but that's because of zoning as Mr. Andreessen will tell you. Just because houses have gotten bigger and families have gotten smaller, doesn’t mean you can buy an average 1970s house in major cities for the same inflation adjusted price. A lot of those old homes are either gone, extremely expensive, or situated in different metro areas than younger generations live in today.

arcticbull 4y ago
I have long advocated for Japanese-style federal zoning rules which would stop local municipalities from playing these games. I agree that housing is more expensive, but of course, housing is priced into inflation numbers - and wages have kept pace. Housing is a major driver of inflation. Part of the discrepancy here - and housing needs its own entire article - is how low interest rates factor into affordability. In the 80's, a 30-year fixed cost 18%. Last year it was 2.5%. On a monthly basis (which is how many calculate affordability) a $166K loan at 18% APR is $2500/mth. A $635K loan at 2.5% APR is $2500/mth. These houses are equally affordable on a monthly basis. Even though one home is $200K and the other is $800K. The only delta is the down payment.
- jfim 4y ago
  Isn't the down payment delta pretty significant? Having to save 160k instead of 40k for a 20% down payment significantly delays the point at which a millennial household could start accruing home equity, feel confident about starting a family, etc.
  - ceejayoz 4y ago
    First-time homebuyers can get a FHA loan, which allow a 3% downpayment.
    - wbsss4412 4y ago
      Allow for a 3% down payment, but add in a requirement for PMI until you’ve hit a sufficient amount of equity, raising the cost of the front end of the loan.
  - arcticbull 4y ago
    Yes, it does mean folks can generally only buy a home later than they would have before - but that's not what we're measuring. We're measuring how well off they are. Over this period, the 1970s to present, equities have way outperformed real estate. So folks rented, and saved in the equity markets instead until they could make their down payments - without diminishing their quality of life. In a very real way, the 'starter home' became a 60/40 equity/bond portfolio plus a rental unit. Between that and FHA as a peer comment pointed out, folks could actually be quite a bit better off today in spite of the bigger sticker - and yes, in spite of PMI (generally only 0.5% to 1%) which can be waived once you reach 20% LTV. (2.5% + 1%) is still way - way - lower than the 18% rates we saw in the 80s. That's why I said housing deserves its own post, rather than letting it get lumped into with the chart crimes. Owning is not always better than renting (although it can be). The biggest driver of the delta between owning and renting is actually the opportunity cost associated with not investing the down payment into the equity markets. The point at which folks buy has shifted older, yes. That isn't always a bad thing. A higher down payment is still your own capital. You get it back when you sell.
    - medvezhenok 4y ago
      There are a lot of other benefits of buying with high interest rates - namely that the U.S. 30-year mortgage allows you to refinance if rates drop. So that 18% headline rate quickly became ~10% or less after refinancing a few years down the road (not to mention paying for houses with depreciating dollars because of the 70s inflation). You don't get the same optionality if you buy with interest rates at an all time low. Housing affordability is actually at an all-time low right now, close to 1982 levels, after the interest rate rise. https://www.atlantafed.org/center-for-housing-and-policy/data-and-tools/home-ownership-affordability-monitor https://www.atlantafed.org/center-for-housing-and-policy/dat...
      - deleted 4y ago
        [deleted]
- Kaze404 4y ago
  The down payment is probably more significant than what your comment lets on. While I haven’t experienced this, it’s not uncommon to hear young people complain that their rent is more expensive than a lease and there’s nothing to be done about it because they can’t afford the down payment.
- wbsss4412 4y ago
  My understanding is that inflation is based on the monthly payment number, not on the sticker price of the house (though I’m not all that confident in that assertion). It’s meant to reflect actual consumer spending baskets.
deleted 4y ago
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arcticbull 4y ago

I have long advocated for Japanese-style federal zoning rules which would stop local municipalities from playing these games. I agree that housing is more expensive, but of course, housing is priced into inflation numbers - and wages have kept pace. Housing is a major driver of inflation. Part of the discrepancy here - and housing needs its own entire article - is how low interest rates factor into affordability. In the 80's, a 30-year fixed cost 18%. Last year it was 2.5%. On a monthly basis (which is how many calculate affordability) a $166K loan at 18% APR is $2500/mth. A $635K loan at 2.5% APR is $2500/mth. These houses are equally affordable on a monthly basis. Even though one home is $200K and the other is $800K. The only delta is the down payment.

jfim 4y ago
Isn't the down payment delta pretty significant? Having to save 160k instead of 40k for a 20% down payment significantly delays the point at which a millennial household could start accruing home equity, feel confident about starting a family, etc.
- ceejayoz 4y ago
  First-time homebuyers can get a FHA loan, which allow a 3% downpayment.
  - wbsss4412 4y ago
    Allow for a 3% down payment, but add in a requirement for PMI until you’ve hit a sufficient amount of equity, raising the cost of the front end of the loan.
- arcticbull 4y ago
  Yes, it does mean folks can generally only buy a home later than they would have before - but that's not what we're measuring. We're measuring how well off they are. Over this period, the 1970s to present, equities have way outperformed real estate. So folks rented, and saved in the equity markets instead until they could make their down payments - without diminishing their quality of life. In a very real way, the 'starter home' became a 60/40 equity/bond portfolio plus a rental unit. Between that and FHA as a peer comment pointed out, folks could actually be quite a bit better off today in spite of the bigger sticker - and yes, in spite of PMI (generally only 0.5% to 1%) which can be waived once you reach 20% LTV. (2.5% + 1%) is still way - way - lower than the 18% rates we saw in the 80s. That's why I said housing deserves its own post, rather than letting it get lumped into with the chart crimes. Owning is not always better than renting (although it can be). The biggest driver of the delta between owning and renting is actually the opportunity cost associated with not investing the down payment into the equity markets. The point at which folks buy has shifted older, yes. That isn't always a bad thing. A higher down payment is still your own capital. You get it back when you sell.
  - medvezhenok 4y ago
    There are a lot of other benefits of buying with high interest rates - namely that the U.S. 30-year mortgage allows you to refinance if rates drop. So that 18% headline rate quickly became ~10% or less after refinancing a few years down the road (not to mention paying for houses with depreciating dollars because of the 70s inflation). You don't get the same optionality if you buy with interest rates at an all time low. Housing affordability is actually at an all-time low right now, close to 1982 levels, after the interest rate rise. https://www.atlantafed.org/center-for-housing-and-policy/data-and-tools/home-ownership-affordability-monitor https://www.atlantafed.org/center-for-housing-and-policy/dat...
    - deleted 4y ago
      [deleted]
Kaze404 4y ago
The down payment is probably more significant than what your comment lets on. While I haven’t experienced this, it’s not uncommon to hear young people complain that their rent is more expensive than a lease and there’s nothing to be done about it because they can’t afford the down payment.
wbsss4412 4y ago
My understanding is that inflation is based on the monthly payment number, not on the sticker price of the house (though I’m not all that confident in that assertion). It’s meant to reflect actual consumer spending baskets.

deleted 4y ago

[deleted]