There are typically deed restrictions that limit income of purchasers and have a formula for the maximum sales price so that the house/condo remains affordable.
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Also the # / % of SFH owned by institutional investors is not all that high.
Institutional investors own 25% of the SFH rentals. Up from 18% before the great recession and real estate bust. And at least some of the âinstitutional investorsâ are just individuals who wrap the property in a LLC or trust.
In total there are less than 5 million homes owned as renters by business entities. Thats not insigificant but its only up 1.4 million from before the recession. So its like 1% of the housing market more or less.
The institutional investors are also not committed to owning the properties as renters forever. Iâd assume that if the properties appreciate enough theyâll be inclined to sell and cash out their investments. Doesnât make much business sense to rent high value properties for relatively lower returns when they could invest the money for better ROI elsewhere.
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The interest rate doesnât matter if the monthly payment is affordable and not significantly more expensive than renting. I donât know what renting was like in the 80âs, but Iâm pretty sure median housing costs relative to median income were much lower than today.
It doesnât matter how reasonable rates may be in a historical context. Rising rates â people can borrow less money and buy smaller/cheaper homes than before â fewer people can afford more expensive homes â more expensive homes may come down in value due to lower demand.
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1980
median home price $47,200
median family income ~$17,500
monthly payment with 0% down on 15% loan = $596
mortgage payment / income = ~40%
2017
median home price $199,200
median family income ~$59,000
monthly payment with 0% down on 4% loan = $951
mortgage payment / income = ~19%
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You arenât including property tax and insurance in your numbers for âpaymentâ. Thatâs making mortgage interest rates appear to affect the house cost/income more than it really does.
Additionally, itâs fine to use âfamily incomeâ, but itâs not equivalent because the average number of earners was lower in 1980. The 2017 âmedian family incomeâ has more two or more earner households.
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I googled and here are a few of the top results, which partially support what I stated â i guess it depends on the reference year and area:
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Yes i donât have tax & insurance there.
I donât think tax & insurance have gone up drastically over the decades relative to home prices nor that including them would change the overall picture much. But honestly thats just my assumption.
So Iâll see what I can find âŚ
Ok I canât find much. I donât see anything on historical rates for insurance or any examples from 1980. For property tax rates I only found this :
THey say that " In 2004, property taxes averaged 3.12 percent of national income, compared to 3.5 percent in the late 1970s"
Granted thats measuring it as a % of national income but it seems proportional to median incomes to me and doesnât seem to have gone up.
And yes youâre correct that nowadays we usually have dual earner households.
RIght the home price / median income is higher now than it was in previous decades. But if you add in the high 15% interest rate vs 4% then thats a huge impact.
e.g. a $100k loan at 4% has a $477 payment but at 15% its $1264.
In the 80âs a typical house was ~2x the typical family income.
Today the typical house is more like 3x the typical family income but the payment / $ is less than half.
Note that the 15% rate is closer to a worse case, since it was more commonly 10-12% in the 80âs.
Worse⌠Imagine if you had a variable rate in the late 70âs at around 9% and then you watched it grow to ~17% by '82. 
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Thatâs the point of mentioning property tax. Thatâs tied to the property âvalueâ directly, and not affected at all by mortgage interest rates. ~$680/$1300 is the two numbers (vs $596/$951) if I sub in my property tax/insurance proportion to mortgage on my $200k house (and 1/4 to 1980). This assumes the property tax rates are right the same over time, which I have not researched but what you found seems to corroborate with. And again like you said you picked the highest interest rates ever and the lowest interest rates ever in the example. Iâm not sure where you ever saw a 4% APR 0 down mortgage either. 20% down no cost mortgages that size touched 3.75%/3.625%. (I got a 3.75 and missed refi that last 1/8).
0 down rate was that low, but I doubt the APR was. And paying lots of points could bring there rate down further. Extra origination fees and mortgage insurance brings up the APR. But I didnât recalculate payments, maybe you included pmi/mip.
All right lets just assume for example sake that the property tax rate is fixed at 1% for both 1980 and today.
If your house in 1980 cost $
1980
median home price $47,200
1% property tax = $472
median family income ~$17,500
prop tax / income = 2.7%
2017
median home price $199,200
1% prop tax = $1992
median family income ~$59,000
prop tax/ income = 3.4%
Its an increase of ~ 0.7% of income.
Not huge.
If we assumed it was 2% tax rate then it doubles to net 1.4% of income increase.
sub 4% rates were common voer the past 5 years :
http://www.freddiemac.com/pmms/pmms30.html
With points⌠Yes people pay points. People paid more points in the 80âs. The average points today is ~0.5 vs 2.0 in the 80âs.
I chose a 0% loan just to keep the numbers simple for the example. But it is harder to save for a 20% loan nowadays than it was in the 80âs so theres that too. I mean saving 20% down payment for a $47k house when yourâe making $17.5k is half a years income in the 80âs but today saving 20% down payment for a 199k house is 2/3 of a years income.
But just for comparisons a 20% down loan at 15% in the 80âs would be ~$477 /mo or 33% of income. The 20% down 4% loan today is $760/mo or ~15% of income. Doesnât look really better than the 0% down loan I used.
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Also interest rates peaked over 17% in the 80âs. I used the 15% figure cause thats the anecdotal % that was mentioned above. I used 4% for todays rates since thats a typical rate over the past 5 years. Theyâre basically extremes but we are comparing the extremes.
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Iâm in one of those liberal cities, it votes heavily D. Plenty of new construction going up here, but Itâs all really high end.
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It seems like itâs really more complicated with lots of other things that add up. I donât have the data or want to go get it. Seems like youâd want to add property tax, insurance, utilities and maintenance to the mortgage carry costs for a full âowning a homeâ affordability comparison. I donât know how each of those things have changed.
18% interest for a 30 year amortized mortgage creates some absurdities. If you only increase the payment by 0.6% (at the same 18% interest rate), then itâs a 20 year mortgage. If you increase the payment by 6%, then itâs a 15 year mortgage. On the other hand, when the APR is only 4%, you would need to increase the payment by 28% to pay it off in 20 years. Or by 57% to pay it off in 15 years.
The average points each year being lower now is interesting. I wonder how more easy rate shopping has affected that or if thereâs some other reasons.
Not so much in DC. It sure must be nice to be guaranteed houseing AND a grassy yard. In DC. Imagine that!
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Hereâs an opinion there is no bubble.
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Shit, if people are saying that, we must be in a bubble.
Really need to make it easier for new housing stock to be built. Iâm thinking one way is to look at regulations. Instead of looking at centuries worth, it might be worth to do a comprehensive look, start from scratch, and write a new rule book that contains all we need in a simple format.
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As I understand it almost all of that is really at the local / state levels.
Even so, I live in regulation heavy / friendly liberal haven and new houses are sprouting up like weeds around us.
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Before we get too far off into the weeds on this discussion, I should clarify my original point.
I was comparing the cost of a home purchase with a 15% mortgage in 1980 versus the typical home purchase today really just to highlight how burdensome a 15% mortgage can be.
Housing has gotten less affordable overall in the past 2-3 decades, no doubt. And Iâm sorry if my original post seemed to argue otherwise as I probably wasnât clear.
But even in the face of housing going up over the decades if you were on of the unlucky people saddled with a 10+% loan back in the 70âs / 80âs then it could have been even worse then.
I think we all agree that a 15% loan would suck. Theyâd even suck back in 1980 when houses were relatively cheaper than now.strong text
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Depends on inflation but I agree. Also someone doing a 30yr at 15-18% and also not refinancing as rates dropped would be pretty crazy. Or choosing to not pay just 0.6% more to pay it off 10 years early (if rates never decreased for 30 yearsâŚ). Then again maybe they couldnât â I donât know if loans may have had prepayment penalties back then, which is unheard of today.
The spread between inflation and the loan APR is its real âcostâ. Or if you prefer, the spread between wages inflation and the loan APR.
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Plus back then most mortgages were ARMs.