High-income job losses are cooling housing demand
jbrec.com289 points by gmays 2 days ago
289 points by gmays 2 days ago
The current housing costs (price + interest rate) just seem so out of line with the average household income it boggles my mind it hasn't cooled alot more already.
At $84k average household income, assuming 1/3 going to a mortgage would give you $2.3k a month to work with. At 6% interest rate, assuming 20% down payment of $70k, you can just manage a $350k home and that is ignoring taxes, not adding other closing costs, not considering utilities, assuming an interest rate on the lower side and assuming a 20% deposit.
Add tax and that gives you around $1.7k to work with. Assume only putting down 10% and adding in $400 a month to cover utilities then you can manage around $175k home. That rules out buying a house in alot of the US.
And yes, households in more expensive areas make more but if you are buying the average house, that costs $410k you need to be making like double the national average income to stick to the 1/3 rule. How many households are earning $170k where houses are $410k?
Are people just devoting 50%+ of their income to housing? Everyone buying a house with the help of mom and dad? I just really don't get it.
> assuming 1/3 going to a mortgage would give you $2.3k a month to work with
That’s the problem right there. Even if you’re locked in on the historically low sub 3% mortgages, there is a chance you’re spending more than 1/3 of your income on housing. People with higher rates and people who are renting, spend a lot more than 1/3 of their income on housing.
I know finance influencers and older generations keep talking about 1/3 income on housing, but that hasn’t been a thing for a while now. Even before the pandemic surge in housing costs, 1/3 on housing was dream in most cities across the country.
> there is a chance you’re spending more than 1/3 of your income on housing. People with higher rates and people who are renting, spend a lot more than 1/3 of their income on housing.
We live in San Francisco and pay rent at about 15% of combined gross income. I think people really underestimate the value of renting.
1. Are you under rent control?
2. What is your income and what is your rent?
While I appreciate the anecdotal data point, it’s easy to conflate personal situations to “this is what everyone else can do”. I say this because for a good 5 years I lived with my spouse in a $2k single bedroom apartment in San Francisco that was under rent control when both of us were raking in tech money. It’s doable, but not something that you can extend to everyone in the country.
Good question. We make tech money and rent a 3bed. No more rent control than SF defaults, we’ve only been here 2 years.
The shocking part is that we pay 5k in rent, but mortgage on the same place would be closer to 9k. Plus the commitment part (annual lease vs 30 year debt)
Very important to do your own math on these things and not just follow common wisdom.
If $60k/year represents 15% of your income, you are well within the top decile of income for the US. The comment thread you are responding to is talking about households earning the average income.
> you are well within the top decile of income for the US
Yes and still can’t [responsibly] afford to buy in my locale :)
The situation is truly fucked and it’s about time Americans admit that housing cannot be both an expectation and an investment. Either everyone gets to own a house or it can be an investment. You can’t have both.
IMO housing is a consumption expense but people hate it when I bring that up at dinner.
Your point about being both an investment and an expectation is important. It's a kind of perverse system. I have no idea how to solve it and I haven't heard any answer besides build more housing. I'll take that as the best answer until I hear more ideas. But even that is untenable because everyone who already owns a home blocks new builds. I don't understand why either in most cases given new development typically raises value of proximal real estate.
> housing is a consumption expense
only the building portion.
The land is not consumed when you live there. It only appreciates due to the developments around that land, making it more desirable and thus, more valuable.
And if the land is more valuable, then it makes sense for it to cost more - either as rent, or as capital appreciation.
> everyone gets to own a house
which is not a truth, but a want/desire. So housing is an investment first and foremost, and will always remain so.
if you buy a house, you are entitled to rent it out and collect that rent.
if you then live in that house, you lose that rental income. That is what you are consuming. the rest of the investment remains intact.
as I like to phrase it, when you move from a rental into a house that you own, you still pay rent.