[nemo44x]

Interest rates have steadily fallen for about 40 years. So the 2x income idea is badly outdated as it assume interest rates around 15%.

When you consider inflation and interest rate decreases, owning a home today is essentially the same as it was 40 years ago in most markets. There are some outliers but overall the inflation adjusted monthly payment isn’t that different. It’s just that a bigger part of that payment is going to principal rather than interest.

The biggest issue is the outdated idea of putting 20% down. As interest rates fall, down payment percentages should fall. And although you can put less down you end up paying PMI which should be adjusted down too.

[syshum]

>>So the 2x income idea is badly outdated as it assume interest rates around 15%.

I 100% disagree, what is badly outdated is the idea that someone can actually afford 2x income home at 15% interest. Doing that would mean likely the inability to have an emergency fund, or save for retirement.

The metrics banks use today to determine "affordability" put people in terrible situations. the focus is on the monthly payment level not the over all debt load. Which IMO is a mistake. the classic Mortgage payment of 30% gross income is WAY to high IMO.

[nemo44x]

I mainly agree with your feelings but it is how it is. People look at what they can “afford” per month and bid houses up to that point. Many people don’t consider what they’ll have left to save/invest, etc and they stretch themselves to be the one who gets the house.

I don’t think this is a recent phenomenon though. I’ve heard stories from my parents from 40 years ago and it’s similar. One that sticks out is when rates fell to 12% they were assured they’d never see rates like that again - time to lock in. And of course the banker was right as rates just slowly made their way down over the following 30 years.

So anyone that says “rates can’t stay this low” are just joining the chorus from way back when.

[syshum]

There is a big difference between saying "Rates can stay this low" when they are 12% during a time when the government was not printing money, nor in the housing market so mortgage has to actually be profitable for the lenders

and a time when the fed is literally printing money and giving it away for 0% interest to institutions with the sole purpose of driving up costs so consumer confidence does not collapse...

I will not say rates cant not stay this low, but doing so is highly irresponsible and will cause massive problems in the 10 year time frame.. The longer the fed keep the money printing brrrrrring the worse off we are all going to be very soon

[nemo44x]

So I do wonder where the equilibrium is between inflation and raising interest rates. That is, inflation gets to a point where homes double in dollar value over a few years but interest rates go much higher creating a situation where anyone with an existing, low rate mortgage is making pretty easy payments (due to inflation and therefore wage inflation) but the real value of their house hasn't really gone up in value due to that same inflation.

Would end up with a win-win situation for existing and future home buyers as opposed to a situation where rates go up but inflation does not which would crust millions of existing home owners and probably lead to regime change, making it political unviable.

Orchestrating this is the difficult part as it couldn't happen over night. But rather as inflation begins to take hold and we see increases in wages, interest rates rise slowly enough to let the housing market avoid collapse.

[syshum]

> low rate mortgage is making pretty easy payments (due to inflation and therefore wage inflation) but the real value of their house hasn't really gone up in value due to that same inflation.

Situations like this are not always bad... This generally will lead to more Home Improvement, and people investing in their homes making them better then dumping them on the market. I find that personally to be better for society instead of letting whole neighborhoods die due to people letting properties run down then moving when the maintenance gets to expensive.

Also inflation does not always track wages. Especially for the middle class. We are seeing that right now in some sectors, where skilled labor rates are more or less flat for the last few years (when adjusted for current inflation may even be dropping) however unskilled labor has seen pretty significant gains recently.