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.
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.
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.
The idea of rent suggests that you're paying a use fee to an owner. But if you live in a house that you own, and therefore lose the potential rental income, who are you paying that use fee to? Is the loss of potential income really the same as rent? Because in that case almost every choice/action in life involves a potential loss of income. There's probably always something more profitable one could have done with time/money.
> Is the loss of potential income really the same as rent?
yes it is. The term is called cost of capital, and sometimes imputed rent. But it's not an "expense" per se like it is when you pay liquid cash to somebody for use of a capital good.
Yeah I think $5k/month at 15% of your income means you’re making more than $400k/year as household. (Even more if you’re counting it on net income)
The strong household income is the only reason why you’re able to limit how much you spend on housing, which unfortunately is not something most people are able to do, even if they’re renting. I get that renting is cheaper than buying at the moment with the interest rates, but it’s not cheap overall.
From a livestyle perspective renting sometimes makes sense. Financially almost never does. There are of course edge cases like very expensive urban areas where there’s no possibility to buy because there are no units on the market and commuting is not possible. But if you work remotely, or suburbs are nearby then owning a place is likely a much better choice than renting particularly if you take advantage of subsidies like state/federal assistance for first time buyers and tax abatements in opportunity zones.
Can you support this claim by evidence? There are various sources [1] reaching the opposite conclusions:
> One thing is clear: renting your housing is not a waste of money, and it can even result in a greater accumulation of wealth over the long-term compared to owning
The abstract math can work out well but the practical reality is that every landlord exists on the slightly-shitty-to-living-slime end of the human continuum. Even if your municipality has "strong" renter protections it is so draining and stressful dealing with them and their weird invasive bullshit and petty malfeasance for decade after decade.
Sure but also I believe that the upper limit for most mortgage servicers is around 41, maybe 43% (one of those two, cannot remember which, or at least it was 4y ago).
There’s no limits per se. 43% is what they “prefer”. More recently with the low demand for mortgages, that number is more flexible. And all of this is on Gross Income and not net. So you could in theory be spending more than 50% of your net income on mortgage alone. If you want to consider “housing” costs, the number would be lot higher.
[1] tells me a $350k mortgage with a 10% deposit, paid off over 15 years, costs $2,585 per month. That's $31k a year.
That kind of income with that kind of house price should be pretty comfortable, given you don't mention supporting a family. If your non-housing bills are costing $109k a year, there's a good chance you could reign in your lifestyle choices.
Don't forget real estate tax and sales tax. In some places, real estate tax is about 20-30% of the rental cost. Sales tax is as high as 10% in some places.
But that's not $140->$70 after tax, that's $140k->$70k after tossing $24k into retirement investment savings, another $5k into healthcare savings, possibly another $1,500 towards healthcare premiums (huge amount of variability there), and then finally taxes.
Until it isn't because enough people realize it is inherently flawed and will never result in stability and they would rather die than relegate themselves, their children, and all their later generations, to indefinite servitude of an outdated economic system. Provided we don't kill our world first in our pursuit of endless profit growth.
> I'd much rather deal with some less stability and have a lot more resources
This strategy works so long as you're in the group of people who do indeed have "more resources," but breaks down if you're marginalized in any way, or if you don't want to support the exploitative system.
That is what people always says about their current culture or economy or political system, even as they are on the very edge of systemic change. And quite frankly to me that just reads like an excuse to not do or try anything so people can kick the can down the road, benefiting themselves at the expense of many others both currently and in the future as things deteriorate further.
it is if that's all people do, but I think it is a necessary step to realize that we do live under a system that encourages an amoral allocation of resources. If people only ever shrug that off or treat it as intractable it will never change. Some would argue that it cannot be changed, but I think that just means they haven't read history.
Brother lately I’ve only been putting groceries on credit cards and you’re right, they’re not a fixed cost. They’re a variable cost that just keeps going up.
You are getting down voted, but it's true. They (WEF-types during their meetings you can watch on youtube) telegraphed it during/soon after the entire Covid lock downs that they intended to make large structural changes to society and the concept of ownership. They didn't make this secret or anything. Heck some sold books on the subject.
Most of what the WEF discusses is how to gain more technocratic control over democracy. You know, for the benefit of everyone...
I guess people think that there is the need for an centralised evil being responsible to coordinate an attack on society and they feel that the comment is a paranoia attack.
It is nothing like that. We can see how equity firms risen again buying certain types of businesses and change the structure of prices. The incentives to do it wrong are all out.
People still think that Microsoft layouts were an unfortunate unpredictable movement given market circumstances when every regulatory organisation pointed that it would be exactly what they would do.
People also think that putting their money in such companies because they have money back is an endless loop of free money and that money is an infinite resource.
Not one or two only have discussed how they should start licensing their products as a new business model. What people thought that would mean? How selling the product does not give the buyer the ownership? How is that not taxed differently?
The essay was a thought experiment based around the popularity of the so-called "sharing economy" at the time, not a WEF strategy document and certainly no government's policy.
Even the author of the piece said it was not a description of her vision of the future, but intended to start a discussion about technology.
But it's been picked up by wackaloons around the world as part of some overarching conspiracy theory.
it's because it's so easy to simply blame the ills of society on some illusory few pulling the strings behind the scenes. It used to be the migrants, or blacks, or the chinese (still is apparently) or the japanese...and now, it's the rich/shadowy figures etc.
The actual truth is that the collective actions of everybody leads to certain outcomes - today's outcomes. It can't really have happened any other way.
Please don't dilute the argument by comparing racial groups with the ultra-rich.
The (ultra-)rich form a class in the classical Marxist sense - a group whose interests naturally align, and they work together to further their interests.
There is deliberate government policy behind what's going on with housing - free money for the rich, which they can in turn invest into speculative assets to make yet even more free money.
Then they ensure that their money has weight by putting said money into housing, pricing out common folk, and building new units to serve as price control to preserve the value of their assets.
Then it's a good thing that the World Economic Forum are not government and do not have lawmaking powers. It's essentially a lobbying firm. I wouldn't worry too much about random slop they publish.
But you see that everywhere.
You buy the hardware but the company may block your property totally or partially.
You buy a car but pays to use heated seat? Who eats this thing that you haven't paid extra for the seats. The costs are just sunk in other parts.
You buy a movie but it can be revoked.
You buy an smart tv that can have features revoked.
You barely can pay your rent because now everyone needs to rent because no one has money to buy except equity firms.
There is no need for "they" to be a centralised being. It is just happening. Doesn't matter who or if there are a "they".
We live in a world where people think that the homeless man is the enemy because people are to simple minded to not understand why there are incentives to keep make it worse and worse.
They are the proponents of The Great Reset. Here’s an excerpt from a book I read:
‘As Hitler declared in 1934, “The German revolution will be concluded only when the entire German Volk has been totally created anew, reorganized and reconstructed” (cited in Koonz, 2003, p. 87). The “Great Reset,” announced by World Economic Forum (WEF) director Klaus Schwab, son of Nazi industrialist Eugen Schwab, attempts the same thing on a global scale, promising to “revamp all aspects of our societies and economies, from education to social contracts and working conditions. Every country [ . . . ] must participate, and every industry [ . . . ] must be transformed” (Schwab, 2020).’
The book is:
Wall Street, the Nazis, and the Crimes of the Deep State
While $84k is the average household income in the US, the average among home owners is a bit higher, around $100k-$120k. Also, very high prices really skew averages. Many "starter homes" are closer to $200k. I bought new 3 years ago, and the rent home I lived in prior, which was in an older middle class neighborhood in a Houston suburb, sold for $224k (and this included some basic renovations like new flooring)
Just want to comment, I think if you were to overlay where people work vs live, most people probably do not have reasonable access to housing @ 225k.
Also I think much of this problem is zoning, which coincidentally Houston has none and has some of the lowest housing costs in the nation, especially for a city of its size.
I suspect much of the housing crisis on the west coast is because of poor zoning laws and could be fixed with a stroke of a pen, at the expense of the local housing market value.
On the location vs price front, I think that's a bit of a red herring.
Because people generally want to live close to their jobs.
If cities have a lot of demand, it's partly because they have a lot of jobs, which means that the price of housing in cities relative to income is still an important metric.
Viewed by holding more of those things constant, the urban medianHousePrice : medianIncome is how much of people's lives we're requiring they dedicate in order to have a roof over their heads.
A lot of people get help from mom and dad, but if you're already a homeowner, the home youre sitting on has appreciated too, so you can role equity into your next purchase. Not everyone is starting from zero. There are so many homeowners who would not be able to afford the home they're currently in, but are sitting on $500k of equity they can role into their next place.
If you think of it as a homeowner debt subsidy, that forces a higher percentage of the country into recurring-revenue rentals, that provides an adverse incentive against correcting home prices for income. Right now the consumer debt that’s substituting for wage increases hinges on the middle class being able to access lines of credit; one very popular LOC is home mortgages. If home values are allowed to fall to the level predicted by median wages, that could trigger a massive wave of defaults and bankruptcies as existing loans go underwater, homeowners have their lines of credit shorn, and then start missing mortgage payments and file for bankruptcy. U.S. mortgage loans for 1-4 bedroom properties are currently $14.5 trillion USD; for comparison, U.S. GDP is around $31 trillion USD. So if 10% of homeowners default or discharge their mortgage debts due to home prices collapsing to realistic levels, U.S. GDP drops 5% that year (not accounting for the loss of interest the banks would’ve recorded to GDP as production output for up to decades). Median household wages for homeowners is $86k, well below the $120-140k threshold recently discussed, supporting the government estimates that 30% of homeowners have difficulty making payments on their homes. So, if those 30% went bankrupt over a home prices crash, there’s a plausible threat of a 15% collapse in GDP (compared to Covid, which was around 10%).
Relative to that, I don’t think economic policy is likely to prioritize new home ownership, not when a catastrophic reversal of years of GDP gain is a material risk. It would be a different story in a first world country, I expect, but here trying to reset home prices would just result in a massive rent costs spike (the U.S. free market tends not to build median-wages housing if it can avoid it) and a notable fraction of those households becoming homeless, while they watch as other families benefit from the price correction’s devastation by buying up their home at auction. The best that policy can do with the restrictions the U.S. government places on itself is to issue federal funding to regional governments to build median-price housing — and since much of that funding would go to regions explicitly hostile to current U.S. leadership, that is extremely unlikely to be passed by Congress.
In 2009 the same chart shows that the median age was 39.
In the early 80s it was early 30s.
Look at congress, we live in a boomer gerontocracy. Not every boomer is wealthy and powerful, but the majority of people who are wealthy and powerful are either descendants of elites/wealthy, boomers, or a very small fraction of younger tech/finance/business owners.
The good news is - assuming there's not a big change in immigration rates - if you can rent cheaply enough for 10-20 years the boomers will start dying in sufficient numbers that if there is somehow no reversion on home prices in the mean time there should be insufficient buyers at that point and prices will eventually fall.
>"if you can rent cheaply enough for 10-20 years the boomers will start dying in sufficient numbers that if there is somehow no reversion on home prices in the mean time there should be insufficient buyers at that point and prices will eventually fall"
But that "10-20 years" is your life, and there's no getting it back. Millennials (the largest generation in US history) have entered into our prime family starting age, and the fact that most are priced out of the housing market right now and stuck renting apartments is a complete tragedy. At a 90th percentile income, I can just barely be able to afford a home and provide for a family of 3-4 like our parents and grandparents did on a highschool education with no higher skills.
I doubt your parents instantly bought a house as unskilled workers at age 18. Maybe in a very few ultra cheap housing markets that would have been possible.
For example in 1980 in SF the median home was $130k and the median household income was $16k. Today it’s $1240k and $141k. So yes it’s less affordable but it’s hardly a massive difference as you imply.
I have figured out my father working an unskilled factory job in 1970 made about $40k adjusted for inflation in order to buy a $40k starter home in early 20s.
Union job with a pension that he is still collecting right now after retiring at 55.
No college. Not even sure he has ever read a book in his life. I would say all you had to do was not be an alcoholic and you would be fine but even that is not true. Even the boomer alcoholic fuck ups I know did pretty well and retired early.
This might be a bit of talking past one another. The rent vs buy argument should be comparing similar housing, but your comment bakes in the assumption that renting=apartment. That may be true for your area, just wanted to point out the dissonance.
> most are priced out of the housing market right now and stuck renting apartments is a complete tragedy
It absolutely is, but as one of those myself, I just refuse to even attempt to pay their prices and will make the best of life while renting and doing other things, not having kids, not owning property unless the ratio changes dramatically. Owning at most a tiny condo for half a million where I live, or moving to the boonies to own marginally more for less is simply not appealing to me, it doesn't unlock anything but a vague sense of security and a shit ton of liability. I hope more people choose the same until the working age tranch of purchasing power isn't as available as they'd like and prices have to drop. It's a major issue, but maybe I should be thankful I never adopted the boomer/genx dreams of owning a place and having a family or whatever. It's something I'm morbidly watching from the sidelines for now (in my early-mid thirties), but there are no circumstances except a miracle side hustle that could create the circumstances for me to actually pursue a mortgage on a place in my city.
>"I hope more people choose the same until the working age tranch of purchasing power isn't as available as they'd like and prices have to drop."
You just have to remember and keep in mind that the game is rigged. Housing is far from being a completely free market in this country. The structural political forces entrenched in maintaining home prices is second to none, from the top federal level all the way down to city councils, in a completely bipartisan way. The crisis of '08 was a generational event that we're not likely to see again in our lifetimes. Flattening and dips for sure, but a crash will not be allowed to happen; they'll just print enough to fix it, and leave the burden of inflation to anyone not owning assets.
Agreed on every point, except I'm actually in Canada, so it's partly because housing didn't crash here that we're arguably even more turbofucked, afaik anyway. Although our current administration would like every working age person to believe that it's solely because of your president that we're screwed economically, the writing has been on the wall for a while; too much of our GDP is made up of residential real estate sales and the rental income generated by the scarcity of them and going into the pockets of people who borrowed endlessly against them.
Well, if we want to be technical about it, the 2008 crash did happen because some structural forces (banks) were perfectly happy to originate highly risky mortgages in exchange for higher face value rates.
Which had the side effect of allowing a lot of people who couldn't otherwise afford homes to purchase them by allowing them access to more leverage than they likely should have had.
If they print enough money your other assets will go up (maybe enough to buy a house that has stayed flat in nominal terms)
This is basically the situation with housing in Canada actually, it's been down/flat in nominal terms since 2021 but if you owned US stocks during that time while waiting to buy then Canadian real estate is now much more affordable to you.
This is all home buyers not first time home buyers. So it’s not clear what we can conclude. It could be that more retirees are buying a house to retire to rather than renting.
I imagine age of first time home buyers has also gone up but there’s no way it’s that high.
I'm sure Ol' John is no player when we compare how much investment funds have being pushing to buy homes. Around here, you can't even bid for a small apartment. They get sold to the folks before they start. Paying flat taxes on hundreds of properties doesnt make sense. They don't contribute to generate more jobs. They just replace the buyer and charge extra money that could have be reverted to other expenses that would create a healthier economy by diversity.
I wonder if the distribution of ages for home buyers is not a normal distribution and maybe the median and standard deviations might tell us something more here. Regardless it's concerning that the average and likely median age has shot up that much.
Well, since 1980, the median age in the population has also increased by about a decade, which is a significant (but not a majority) contributor to this.
>if you can rent cheaply enough for 10-20 years the boomers will start dying in sufficient numbers that if there is somehow no reversion on home prices in the mean time there should be insufficient buyers at that point and prices will eventually fall.
You may be missing something - there's so much money flowing upwards in society that the rich/ultra-rich will simply be able to buy ALL of that real estate as it becomes available. If not ALL, then everything that's desirable.
Usually you don’t buy a whole house when you are 25. You start with a small unit. My first condo was 700 sf which I sold for a good profit and use the money to pay for a bigger condo, about double the size. I then combined the profit of the second home with my wife’s profit from her house which was also small and together we got our first nice house just outside the city, about 15 min commute. We paid around 220 $/sf compared to 600 $/sf for a similar home in the city. Our house is 3X the size of the house I grew up in with my parents and 3 siblings, which was standard size for a middle income American family in the 80s. Not to mention the quality and amenities of our house is so much better than a house from the 80s. Yes houses are a lot more expensive today but only if you are buying in busy urban areas. If you dare to look in the suburbs you’ll find great homes which by square footage have not increased that much in the past 30-40 years after adjusting for inflation. In the city you are competing with everyone else wanting to be able to walk to their favorite brunch place. Cities also have crazy regulations that prevent building affordable homes.
If there are N houses available in the bay area and FAANG hires a total of more than N people from outside the bay area at a median $X/year, then the median cost of a house will be more than the most house that someone making $X/year can afford.
We’re paying Cal FAIR about 10% the value of our house per year, despite having best possible fire safety for come construction and the area surrounding the house.
So, in your example, thats 175/10/12 = 1.5K per month, leaving $200 for the mortgage. So, $175K is unrealistic.
In related news, Cal FAIR is lobbying for a 60% increase in rates this year, because, apparently 16% of rural houses in California burn down each year (it’s either that, or they’re unbelievably corrupt/incompetent, since they’re somehow losing money).
Note that people in flood planes (much of the cities) have similar issues.
The taxes are important though. You'll "pay" for that monthly through your escrow account (or you'll save up for it in a HYSA or something, though personally I'd rather have my lender deal with the city and estimating next year's increases).
With taxes included, that $1800 mortgage can easily become $2600-$2800/month --- $33,600/year --- in a high-property tax state (like many of the states that don't have income tax, which are where many of the cheap homes are). For that to be 30% of your _net_ income, you'll need to clear $112k/year _post-tax_, which is $373k/yr HHI pre-tax assuming 35% of those go to federal, state and FICA.
You'll "only" need $112k/yr HHI if, like lenders, you're assuming that this will be 30% of your gross income. However, if we assume net is 65% of gross, then this mortgage is 46% of your net income. I know that a lot of people carry that risk, but that's a little high for my comfort level.
As for:
> 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.
Like almost everyone else that didn't have Mom and Dad angel investors, we got insanely lucky. I had two really good years financially during which time I was able to save enough to hit our 20% down and then some. We were also lucky with our current situation, as our landlord was willing to extend our lease without increasing the rent and the place we were renting was pretty sweet.
In the UK it seems more about the super wealthy buying up houses to rent them out. Incomes don't appear to be the biggest factor at all, more about concentration of wealth
Housing costs in the US can be out of line with average income because there isn't enough housing. Sellers only have to compete for the top X% of incomes.
When did that become the rule? Why, back in my day, 25% was the max amount recommended to spend on housing. Though that was also back when no one would even think of taking out a 72 month car loan. Maybe one of those new 60 month loans, if you just don't have the money, otherwise stick to 36 months.
And like you, I just don't get it. 1/3 on the house, whatever percentage comes out for the $40K car @ 72 months (granted, one doesn't need to buy new), where's this money coming from? We live in Redmond (WA), and I'm at a loss as to how there are so many newer Teslas parked in >$1MM houses. C'mon, there's only so many of those $500K total comp jobs to go around.
Ultrasonics, eye monitors, electronic locks, self-contained infotainment systems (just a screen and the interfaces for a phone would be fine), lane keeping, auto-braking
Before my time but HUD upped the rent cap on affordable/public housing to 30% of income in 1980. Even 1/3rd's a stretch for most folks in most places in the US. A 25% rule of thumb isn't much use if folks can't find housing that meets the bar.
Meanwhile in areas where housing is absurdly expensive, other things aren't as expensive, so 1/2 is totally doable. E.g. if a studio is $2000/mo you have $24k/year for all other expenses, which is probably fine?
What places are those? When I think of cities with expensive housing (NYC, LA, SF, Boston, London, etc) they typically also have higher taxes, fuel prices, food, etc. Maybe you can swap a costly car for public transit?
I've never lived in those, but my sister lived in Boston and didn't own a car.
Income tax is progressive, so a higher income tax is probably less relevant to you if you are housing-insecure. Sales tax is regressive, but is maybe 700bp higher in places with high sales tax, so much less than the 50% bump between 1/3 and 1/2 your income. As far as food goes, if you eat out, that's way more expensive, but groceries are a much smaller difference.
$1700 per month pays off a $350k loan in 17 years, does it not? That's assuming that the household income stays static over that time.
That is very reasonable. In Australia, 35 year mortgages are normal, and 25-30 year mortgages were normal 20 years ago. Why would your household income need to be 1/4 of the cost of the house to make it work?
> $1700 per month pays off a $350k loan in 17 years, does it not?
No, it does not. You forgot the interest. Let's call it 6%, close to the current US average.
The interest by itself comes to more than $1700 a month!
Paying $1700 per month, you'll never pay off $350k, even with a 1000 year mortgage.
To pay in 17 years, you'd need to pay $2741 (plus fees) per month. Most of that will be interest at first, but it tapers down. If you want to start out not paying mostly interest, you'll need to pay at least $3500 (plus fees) per month.
The parent I was replying to stated a $70k deposit on this, meaning it would take about 25 years, so my early morning maths was a bit off. Even so, that doesn't seem unachievable?
Yes and no. A lot of people have gaps in their financial education.
That said, mortgages aren't rocket science.
1. Assume at the end of the day you want the homeowner to be paying a stable monthly amount*.
2. In order to get there, you have {loan term}, {interest rate}, and {loan amount} as primary variables.
3. Assuming {loan term} and {interest rate} are constant (in a given mortgage market, at a given time), that leaves {loan amount} as the only variable.
So how do you get a constant monthly payment for a variety of {loan amounts}?
4. You add up all the interest that would be owed over the entire {loan term}, using {interest rate}, then divide each monthly payment into some proportion of {interest payment} and {principle payment}.
5. You also front-weight the interest payments, because at that time there's more outstanding total loan (versus at the end of the loan term, when only a little principle remains to be paid back).* *
Not super complicated. Yes, there's compound math, but conceptually simple.
* For some definition of stable, even if it readjusts on some schedule
* * Point in time interest pricing like this also makes future recalculation for over/underpayments easier, as you're essentially trued-up on interest payments at all times
The example rate on the calculator is 5.35, about right when the base rate is 3.6 percent (though you can get lower), using that your $350k mortgage will take 40 years to pay off at $1700 per month. A $300k mortgage would take about 30 years. Or a $230k mortgage could be paid in your 17 years.
None of these loan amounts will get you anywhere close to a house in Australia today. You're looking around $1 million for the average house in most of the capital cities, with very few available under about the $650k mark.
The payment is set up such that the interest is amortized over the life of the loan, so your earliest payments are almost all going to interest and the latest payments are mostly the principle.
This looks like a standard 30 year loan. If 100% of the 1700 went to principle and the was no interest then yeah, your 17 years works out, but then the bank makes no money.
I did find it quite tough for a lot of years to treat myself, as I would try to save as much as I can to have a safety net. But even now with a safety net in the bank, I still have in the back of my head if I purchase something that is x mortgage payments, and I could save that instead to have in the bank in case I lose my job.
The average homeowner household makes more than the average. Many people are not homeowners.
For example if you are 22 and just started your first job you are included in the statistics but I think we wouldn’t really expect it to be affordable to become a homeowner (nor would it be desirable from a labor mobility standpoint).
And many people prefer renting somewhere like Manhattan to buying in Topeka. So it doesn’t make sense to assume everyone wants to buy a house. I know several millionaires that rent.
It would be better to compare overall cost of housing to income.
Probably a lot of private equity buying up homes to generate rental income? Usually, I am more pro market, but I think there needs to be some regulations on this. Although if you are an existing homeowner with low interest rate locked in, you probably want more private equity investments to drive up your property value...
This myth needs to die. PE does not own that many homes. There was a small period in early COVID where interest rates were lower than cap rates. During this time PE, along with the investment market in general, invested in real estate including SFRs. That is no longer the case. It's a great boogeyman but trust me, having worked in the industry, institutional investors own less than 5% of SFRs.
Real estate investing in general went bananas during COVID (plenty of non-PE buyers as well) because it's one of the only ways the average citizen can access that amount of leverage.
"Private equity generating rental income" is a lie fed you by the rich lobby. The real reason (everywhere in US and Europe) is zoning, which is a subsidy to the owners of existing buildings at the cost of everyone else.
Zoning change would spike land value in more populated area much more closely located to metro center, but it will depress demand on locations further away from the urban center.
1/3 of the houses bought in the US are bought by these kinds of organizations. Zoning might matter, but large capital owners are buying up a large fraction of the houses that are for sale and this is obviously driving up prices.
Real estate investors, both individual and institutional, bought one-third of all single-family residential properties sold in the second quarter of 2025.
Institutional investors are selling more homes than they buy and have been for six consecutive quarters.
While large institutional investors continue to get most of the headlines in the single-family rental space, small investors account for more than 90% of the market. These are individuals owning 10 properties or less. The largest investors, those with 1,000 or more properties, make up just 2% of all investor-owned homes.
>Real estate investors, both individual and institutional, bought one-third of all single-family residential properties sold in the second quarter of 2025.
is, as I view things, what I said. You may say that individual real estate investors are not typically large capital owners, but that's a definitional thing, or a matter of assessment that isn't interesting to debate.
No matter how you choose to define it, investors buying homes are buying a substantial fraction of the homes on the market (1/3) and presumably have a substantial effect on prices.
"Definitional things" are often pretty important to productive discourse, and both of the recent comments you responded to with your assertion that "these kinds of organizations" are buying up 1/3rd of homes were clearly talking about large institutional investors, not some guy who owns a few rental homes.
It's entities bigger than them driving up prices. The adversarial situation might even be even more apparent with the guy buying up 'a few' rental homes.
You’re commenting on a story about how housing demand is cooling, so why are you talking about how investors are driving prices up? Especially when the institutional investors are selling more than they’re buying…
Calling it a "subsidy for existing owners" is a slighty of hand that avoids blaming the literal hordes of useful idiots who are happy to see all manner of asinine provisions written into the zoning code to cater to their interest, whatever that may be. If it were just property owners it wouldn't have gotten done. It's busybodies, environmentalists, moralizing jerks, etc, etc that provide the necessary political will.
There's something fundamentally strange about how prices have spiked and inventory has tightened since Covid. Where I live in rural New England, prices are up 50–100% in five years. And this is on pretty poor quality homes. Yes, low interest rates led to a surge in buying and bidding wars that spiked the baseline, but when people say "the real problem is there isn't enough housing" that feels incomplete to me. Of course supply has been an issue for a while, but home prices nearly doubling in five years doesn't look like a normal supply story -- it's not as if we suddenly created 20-50% more qualified buyers in that time. I guess the lack of churn, with people hanging onto those sweet 3% mortgages much longer than usual, is probably part of it. But I really don't have an answer for the current state of home buying. I make great money but if I was to buy a house the quality of the house I got in 2018 with the same % down payment I would be looking at over 40% of my take home going to a mortgage, PMI and taxes.
> it's not as if we suddenly created 20-50% more qualified buyers in that time.
We don't create buyers quickly, but mobility means that a large number of buyers can show up in one concentrated area much more quickly than housing can adapt.
One piece of the US real estate puzzle is that automation and outsourced killed agriculture and manufacturing jobs. Those are the kinds of jobs that have some natural incentive to be spread across the US. Ag, because farms literally take up a lot of space and are spread out, and manufacturing because factories tend to be close to raw materials, ports, or other local resources.
When you get rid of those jobs and replace them with information work, you create a feedback loop with no dampening in it. People want to go where the most jobs are, so they move to the cities. Businesses want to open where the most workers are, so they start companies in cities.
The next thing you know, all the small towns are filled with dirt cheap empty houses because there are no jobs. Meanwhile, every metro area is bursting at the seams.
This makes some sense to me. The solution to housing often put forth is to build more affordable housing. In the context of people wanting to move toward cities where jobs are this makes sense.
But it seems like there is a larger problem of just having tons of housing inventory that is out of reach or untenable to most people. What are the more basic numbers of how many units exist in the country vs. how many people there are? How many second, third, investment, vacation units are there, how many sit empty most of the time? (I'm mostly not talking about true "country"/vanity houses far away from economic centers that will always only be accessible to the rich)
It seems to me that rather than just "build build build" we could do a lot to reconfigure the existing supply to make it fit the people better? Why is there so much "unaffordable" stock out there and continuing to be built? It kinda feels like the affordable housing issue is just a red herring for the larger wealth inequality issue.
> we could do a lot to reconfigure the existing supply to make it fit the people better?
The problem is that housing and infrastructure is, you know, actual giant physical objects. It takes a year of planning and millions of dollars to move a road. You can't tear down a block of single family homes and put a denser apartment building in there until everyone living in them sells. You need to run sewer, power, and roads to make a new neighborhood, and even then you will still have to deal with the impact to nearby schools, traffic, hospitals, etc.
Making places for people to live is, like, many orders of magnitude more effortful than anything we do in the software world.
> It kinda feels like the affordable housing issue is just a red herring for the larger wealth inequality issue.
Yes, this is certainly another piece of the puzzle. For every 100 people who can't afford a thing, there's still 1 rich person who can, and increasingly, rich people are the primary source of profit for businesses. So businesses target them more and more and we end up in today's world where it seems like "no one can afford what's being sold".
It's because unless you're one of the wealthy minority, you're simply not a market participant at all.
Sorry, by reconfigure I meant something akin to artificially lowering prices, legislation to push more homes to be filled by people that need them, allowing remote work, anything leveraging existing infra as much as possible.
My point is that we have the physical problem of housing units per capita beyond solved already, it's just socially/economically out of whack.
Unless there is not something I am seeing, people aren't racing to move to rural New England. Maybe it's retirees, red to blue state migrations, or remote workers. But I haven't seen a ton of evidence of that. People didn't really migrate out here before covid and I don't think enough people have to justify the rise in prices.
Personally I think people that otherwise would be selling are sitting on their homes because of the interest rates and this is causing a strange feedback loop of low turnover causing low supply which in turn causes new buyers to accept the prices (probably with a hope that interest rates will come down and they can re-fi in the years to come). I also think a non-trivial number of houses that on the market due to the owners passing or going into retirement homes are sitting there on the market because prices are so high but the only money the family is out is taxes. Or they are being turned into rental units, since rental prices are out of whack in these areas too.
My point I guess is where I live we haven't seen a big influx of population (probably the opposite) or significant job or wage growth to make sense of the increase in housing prices. I guess at the end of the day people are just stretching themselves further and sending more money to the banks in the form of interest to get into homes that were literally half the price in 2019. Strange times.
I agree that people sitting on their mortgages is part of the story.
I do also think there's a thing where home prices have risen so steeply in metro areas that even rural areas with fewer jobs are seeing prices go up because the market will allow it. Because the cities are so expensive, a house in a rural area can still be a relative good deal even if it's more expensive than it used to be.
City planning certainly isn't my area of expertise. I think it's a fiendishly hard problem. For a small town to draw people in and thrive, it needs:
1. Jobs.
2. Good K-12 schools.
3. Some amount of things to do and cultural amenities.
Remote work can help a lot with #1. I think people are fairly tolerant of a lack of #3 and it's a thing that can grow organically over time. People will also accept fewer things to do if the area is quieter, they can afford bigger homes, and there's more outdoorsy stuff nearby.
But #2 is really hard. You need a strong tax base to fund it, which small towns don't have. They are sort of trapped in a death spiral where if they had more people coming in, they could have better schools with the increased tax base, but they don't, so they can't, so no one moves there.
House value has gone up along with other assets since Covid because a lot of money have been printed. A trillion here and a trillion there, pretty soon we're talking real inflation. Real estate is the real inflation hedge.
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.