4 ms·

> All else being equal, we would expect 50% of homes to be unaffordable to a median buyer. Sounded reasonable on first and second reading. But now I question

by mrkeen 4y ago

> All else being equal, we would expect 50% of homes to be unaffordable to a median buyer. Sounded reasonable on first and second reading. But now I question why. Would 50% of avocados be unaffordable to the median buyer? Would 50% of private jets?

notahacker 4y ago
I'd argue that more than 50% should be affordable to a median buyer, on the basis that not everyone lives in the most expensive house they can possibly afford, and in the middle of the house pricing range there are multiple homes available at any given price. Of course, there's also a large set of people who cannot afford to be buyers [in areas suitable for them to live] for various reasons and this median income dataset includes them. Not entirely sure they've used median household income and not median individual income either
throwaway09223 4y ago
"Would 50% of avocados be unaffordable to the median buyer?" Avocados are homogenous. One is generally as good as another. It's hard to convince someone to pay significantly more for an identical product (although- it's possible through marketing and there are boutique produce suppliers with wildly unaffordable prices. Specially imported/handled fruits and the like which aren't found in grocery stores) Homes are not homogenous. Real estate values vary wildly in value based on location, size, and other characteristics. This will always be true because real estate is inherently a zero-sum system. A skyscraper will have drastically different prices for units along the side of the building with the best view - or near the top, etc. The product is inherently unequal with large differences in demand between each type of unit, so prices will always be unequal as a result. People with more money will always be able to bid higher than people without. This dynamic exists no matter how many homes are built.
- mrkeen 4y ago
  Every response seems to say that avocados aren't houses. No-one wants to touch the private jets question. Where did you get the %50 figure from?
  - throwaway09223 4y ago
    It's because the private jets question is stupid. Jets aren't affordable to a median wage earner. "Where did you get the %50 figure from?" It's literally the definition of a median.
    - mrkeen 4y ago
      Yes, you can use the median wage earner to make statements about the 50th percentile wage earner. What does that have to do with homes? You have not explained how you've connected the 50th percentile wage earner to "50% of homes". Bringing up other unrelated items which obviously don't have a %50 <-> %50 mapping should have made that clear.
      - throwaway09223 4y ago
        'You have not explained how you've connected the 50th percentile wage earner to "50% of homes".' Yes I did. It's the second paragraph of this post. You may want to read it again keeping in mind your question has already been answered: https://news.ycombinator.com/item?id=35041925 https://news.ycombinator.com/item?id=35041925 "Bringing up other unrelated items which obviously don't have a %50 <-> %50 mapping should have made that clear. " Incorrect, as I've already explained in the above post. Eggs are a fungible commodity, homes aren't.
        mrkeen 4y ago
        There's plenty of facts I'm willing to take axiomatically at face value: * Avocados aren't houses * Eggs are fungible * Homes are not homogenous * Half of all earners earn above the median * Half of all earners earn below the median > as I've already explained in the above post. Eggs are a fungible commodity, homes aren't. So all I have to do is find a non-fungible commodity X (which is not as "silly" as private jet), and it will follow that 50% of X will be unaffordable to the median buyer?
        throwaway09223 4y ago
onlyrealcuzzo 4y ago
Very few people can afford the house they want. Housing is viewed as an investment, not an expense. People generally buy the most house they can afford - but not the biggest avocado they can afford.
- parineum 4y ago
  "most" does a lot of work for you there. People buy house for a plethora of reason, walkability, school district, commute, safety, etc. and that's not even getting into anything about the actual house! square footage, back yard, front yard, garage, bathrooms, bedrooms, etc. People want the most of what they value but two different people with the exact amount of money to spend on a house would likely choose different houses that they both consider the "most". And if you give those people the same amount of money and tell them they must buy a house but they can keep any money they don't spend, they'd probably make a different choice, buying "less" house than the can afford. People generally buy the house that the like the most that also fits their needs/wants, same with avocados. Sometimes I buy them ripe because I want to eat them today, sometimes I buy want them for a few days in the future for a specific occasion but not more than I can use. Sometimes I just buy them because they're on sale and I like them.
lifeisstillgood 4y ago
Good point. I think the answer is that the definition of market is ... flexible. Avocados are a commodity and cheap enough that yeah everyone in US can afford one. Not true for global population living on a dollar a day.... Houses are probably more like a car market - it's designed to cover everyone, and so there is a percentage that is unaffordable - and that I think is the real point - the orignal article kind of assumes all houses should be affordable - but that's not true. The OP argues that only 50 % are affordable - that's kind of a guesstimate and think the percentage is more likely similar for cars - not sure what it is but let's guess 80%. Add in fact that affordability is defined so ways - percentage of incame and will someone give you mortgage and most of the disagreements go away
- ClumsyPilot 4y ago
  > Houses are probably more like a car market - it's designed to cover everyone Designed by whom, Government? Someone else? If it is designed, is it designed correctly? I am concerned that pro market position wants to have it both ways, sometimes claims its designed and sometimes that invisible hand knows best. They seem to be unwilling to examine market failure and fix prohlem before they result in disasters like 2008 did
roenxi 4y ago
An interesting puzzle. Raises questions about why the definition of affordable is "a listing ... [where] the estimated monthly mortgage payment is no more than 30% of the local county’s median income.". How did this figure get picked and what does it really mean? In a wealthy district where people are saving a lot of money, obviously they can afford, in the literal sense, interest payments that are higher than that.
- HPsquared 4y ago
  Yeah, I never understood the 30% thing. You need to live on what's left over. If "minimum non-housing living costs" are , say, 20k/year, someone who earns 30k can only afford to spend 33% on rent, but someone earning 100k could afford spending 80% of their income on rent (if they chose to do so). The 30% thing is completely arbitrary and a massive distortion of reality.
  - hnburnsy 4y ago
    Conventional mortgage qualifications are typically 36% DTI. Debt to income ratio is (PITI + all other monthly debt payments) / monthly pre-tax salary. PITI is principal, interest, property taxes, and mortgage insurance.
    - HPsquared 4y ago
      That's the rule, but what is it based on? Why does it need to be proportional to income? It seems pretty arbitrary. It would be more correct to use actual living costs in a given area (food, transport, etc.).
      - hnburnsy 4y ago
        It is set by the organizations that purchase mortgages from the bank. If the borrowers don't meet these guidelines they won't buy the mortgage and the bank would need to hold it, which they typically don't want to. See FNMA and FHLMC.
      - 4y ago

by mrkeen 4y ago

notahacker 4y ago

I'd argue that more than 50% should be affordable to a median buyer, on the basis that not everyone lives in the most expensive house they can possibly afford, and in the middle of the house pricing range there are multiple homes available at any given price. Of course, there's also a large set of people who cannot afford to be buyers [in areas suitable for them to live] for various reasons and this median income dataset includes them. Not entirely sure they've used median household income and not median individual income either

throwaway09223 4y ago

"Would 50% of avocados be unaffordable to the median buyer?" Avocados are homogenous. One is generally as good as another. It's hard to convince someone to pay significantly more for an identical product (although- it's possible through marketing and there are boutique produce suppliers with wildly unaffordable prices. Specially imported/handled fruits and the like which aren't found in grocery stores) Homes are not homogenous. Real estate values vary wildly in value based on location, size, and other characteristics. This will always be true because real estate is inherently a zero-sum system. A skyscraper will have drastically different prices for units along the side of the building with the best view - or near the top, etc. The product is inherently unequal with large differences in demand between each type of unit, so prices will always be unequal as a result. People with more money will always be able to bid higher than people without. This dynamic exists no matter how many homes are built.

mrkeen 4y ago
Every response seems to say that avocados aren't houses. No-one wants to touch the private jets question. Where did you get the %50 figure from?
- throwaway09223 4y ago
  It's because the private jets question is stupid. Jets aren't affordable to a median wage earner. "Where did you get the %50 figure from?" It's literally the definition of a median.
  - mrkeen 4y ago
    Yes, you can use the median wage earner to make statements about the 50th percentile wage earner. What does that have to do with homes? You have not explained how you've connected the 50th percentile wage earner to "50% of homes". Bringing up other unrelated items which obviously don't have a %50 <-> %50 mapping should have made that clear.
    - throwaway09223 4y ago
      'You have not explained how you've connected the 50th percentile wage earner to "50% of homes".' Yes I did. It's the second paragraph of this post. You may want to read it again keeping in mind your question has already been answered: https://news.ycombinator.com/item?id=35041925 https://news.ycombinator.com/item?id=35041925 "Bringing up other unrelated items which obviously don't have a %50 <-> %50 mapping should have made that clear. " Incorrect, as I've already explained in the above post. Eggs are a fungible commodity, homes aren't.
      - mrkeen 4y ago
        There's plenty of facts I'm willing to take axiomatically at face value: * Avocados aren't houses * Eggs are fungible * Homes are not homogenous * Half of all earners earn above the median * Half of all earners earn below the median > as I've already explained in the above post. Eggs are a fungible commodity, homes aren't. So all I have to do is find a non-fungible commodity X (which is not as "silly" as private jet), and it will follow that 50% of X will be unaffordable to the median buyer?
        throwaway09223 4y ago

onlyrealcuzzo 4y ago

Very few people can afford the house they want. Housing is viewed as an investment, not an expense. People generally buy the most house they can afford - but not the biggest avocado they can afford.

parineum 4y ago
"most" does a lot of work for you there. People buy house for a plethora of reason, walkability, school district, commute, safety, etc. and that's not even getting into anything about the actual house! square footage, back yard, front yard, garage, bathrooms, bedrooms, etc. People want the most of what they value but two different people with the exact amount of money to spend on a house would likely choose different houses that they both consider the "most". And if you give those people the same amount of money and tell them they must buy a house but they can keep any money they don't spend, they'd probably make a different choice, buying "less" house than the can afford. People generally buy the house that the like the most that also fits their needs/wants, same with avocados. Sometimes I buy them ripe because I want to eat them today, sometimes I buy want them for a few days in the future for a specific occasion but not more than I can use. Sometimes I just buy them because they're on sale and I like them.

lifeisstillgood 4y ago

Good point. I think the answer is that the definition of market is ... flexible. Avocados are a commodity and cheap enough that yeah everyone in US can afford one. Not true for global population living on a dollar a day.... Houses are probably more like a car market - it's designed to cover everyone, and so there is a percentage that is unaffordable - and that I think is the real point - the orignal article kind of assumes all houses should be affordable - but that's not true. The OP argues that only 50 % are affordable - that's kind of a guesstimate and think the percentage is more likely similar for cars - not sure what it is but let's guess 80%. Add in fact that affordability is defined so ways - percentage of incame and will someone give you mortgage and most of the disagreements go away

ClumsyPilot 4y ago
> Houses are probably more like a car market - it's designed to cover everyone Designed by whom, Government? Someone else? If it is designed, is it designed correctly? I am concerned that pro market position wants to have it both ways, sometimes claims its designed and sometimes that invisible hand knows best. They seem to be unwilling to examine market failure and fix prohlem before they result in disasters like 2008 did

roenxi 4y ago

An interesting puzzle. Raises questions about why the definition of affordable is "a listing ... [where] the estimated monthly mortgage payment is no more than 30% of the local county’s median income.". How did this figure get picked and what does it really mean? In a wealthy district where people are saving a lot of money, obviously they can afford, in the literal sense, interest payments that are higher than that.

HPsquared 4y ago
Yeah, I never understood the 30% thing. You need to live on what's left over. If "minimum non-housing living costs" are , say, 20k/year, someone who earns 30k can only afford to spend 33% on rent, but someone earning 100k could afford spending 80% of their income on rent (if they chose to do so). The 30% thing is completely arbitrary and a massive distortion of reality.
- hnburnsy 4y ago
  Conventional mortgage qualifications are typically 36% DTI. Debt to income ratio is (PITI + all other monthly debt payments) / monthly pre-tax salary. PITI is principal, interest, property taxes, and mortgage insurance.
  - HPsquared 4y ago
    That's the rule, but what is it based on? Why does it need to be proportional to income? It seems pretty arbitrary. It would be more correct to use actual living costs in a given area (food, transport, etc.).
    - hnburnsy 4y ago
      It is set by the organizations that purchase mortgages from the bank. If the borrowers don't meet these guidelines they won't buy the mortgage and the bank would need to hold it, which they typically don't want to. See FNMA and FHLMC.
    - 4y ago