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Oh, the good old days! I bought my first home in 1977 and moved several times thereafter. Always bought at a low price, refinanced when the rates dropped, repeated 3–4 times. What's the problem?/s https://fred.stlouisfed.org/series/USSTHPI
These cry babies moaning about sub ten percent interest rates don't have a clue.
Thirty year average mortgage rates peaked at 16.63% in 1981, dropped to 16.04% in 1982, then slowly started coming down.
Key word there is "average", there were people paying over 18% in early part of 1980's.
Ironically 2021 even with covid panic was when average 30 year mortgage rates hit rock dirt bottom (hair over 2%). There's no place to go from there but up.
We have been over this 10 times before. It is about affordability, not interest rates.
In 1980, if you made $1,800 per month and paid 14% on a $60,000 home, your payment was $570 per month, or 32% of your monthly income.
Today, if you make $5,400 per month and pay the current 7% on a $400,000 home, your payment is $2,200 per month, or 41% of your monthly income.
Calcs above using actual median numbers for 1980 and 2022.
1980 was more affordable at 14% when homes were much cheaper.
Cry babies my rear.
That is pre-tax. Paying 14% interest means a huge tax deduction. In a 25% tax bracket, that reduces your effective interest rate to 10.5%, so you were even that much better off at 14% in 1980, than at 7% today.
Oops, I forgot that pre-Reagan tax brackets were way higher. So your effective after tax rate was probably more like 8%.
The key here, is homes today cost about 5x median income instead of 3x median income. Makes a difference to us "cry babies".
Don't even get me started on how closing costs were $100 in 1980 vs $10,000 on that $400,000 home today. My mother said her first home cost $40 in closing costs. Fees today are insane.
Last edited by Igor Blevin; 03-03-2023 at 02:43 PM..
Back on topic, the Fed broke the housing market leaving rates at 0.25% for a year too long. Of course people are going to sit on 3% mortgages. It will define many homeowners lives for the next decade or more. That is way too much to give up.
A 3% mortgage is an asset.
Banks are going to get spanked now that they are paying more to borrow money than those mortgages are bringing in.
We have been over this 10 times before. It is about affordability, not interest rates.
In 1980, if you made $1,800 per month and paid 14% on a $60,000 home, your payment was $570 per month, or 32% of your monthly income.
Today, if you make $5,400 per month and pay the current 7% on a $400,000 home, your payment is $2,200 per month, or 41% of your monthly income.
Calcs above using actual median numbers for 1980 and 2022.
1980 was more affordable at 14% when homes were much cheaper.
Cry babies my rear.
That is pre-tax. Paying 14% interest means a huge tax deduction. In a 25% tax bracket, that reduces your effective interest rate to 10.5%, so you were even that much better off at 14% in 1980, than at 7% today.
Oops, I forgot that pre-Reagan tax brackets were way higher. So your effective after tax rate was probably more like 8%.
The key here, is homes today cost about 5x median income instead of 3x median income. Makes a difference to us "cry babies".
Don't even get me started on how closing costs were $100 in 1980 vs $10,000 on that $400,000 home today. My mother said her first home cost $40 in closing costs. Fees today are insane.
Two options for you...don't buy a $400,000 house, buy a $300-$350K house. Move to another area if you have to to achieve that. OR, save a larger down payment. My advice is to do both.
Argue with that all you want, but the truth is that when confronted with the realities of the day, do something different. This really isn't rocket science people.
Two options for you...don't buy a $400,000 house, buy a $300-$350K house. Move to another area if you have to to achieve that. OR, save a larger down payment. My advice is to do both.
Argue with that all you want, but the truth is that when confronted with the realities of the day, do something different. This really isn't rocket science people.
I am not fighting today's reality. I am sick of people making it sound like the 1980s were less affordable than today because they are not looking beyond the high interest rates.
Homes were much more in line with incomes in 1980. High interest rates made buying difficult, but high prices today are making buying even MORE difficult.
Home affordability is worse today at 7%, than in 1980 at $14%, because homes are 5x incomes today but were 3x incomes in 1980.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Quote:
Originally Posted by Igor Blevin
I am not fighting today's reality. I am sick of people making it sound like the 1980s were less affordable than today because they are not looking beyond the high interest rates.
Homes were much more in line with incomes in 1980. High interest rates made buying difficult, but high prices today are making buying even MORE difficult.
Home affordability is worse today at 7%, than in 1980 at $14%, because homes are 5x incomes today but were 3x incomes in 1980.
I decided to look at our own data, from 1980, the year our first child was born. We had just bought a house for $50,000 at 8% interest, and our combined income was $22,000, ($1,833/mo) and our payment was $369, so we were at 20% of our income.
We have stayed in our current house for 28 years but if we tried to buy it again today at $1.3 million with 20% down at 5% interest our payment would be $5,583/month, and that's about 37% of our income, not 5x.
The problem, of course, would be coming up with the 20% down, that's $260,000. On our first house we put down 10%, that was $5,000 and that was hard to save up at the time.
I decided to look at our own data, from 1980, the year our first child was born. We had just bought a house for $50,000 at 8% interest, and our combined income was $22,000, ($1,833/mo) and our payment was $369, so we were at 20% of our income.
We have stayed in our current house for 28 years but if we tried to buy it again today at $1.3 million with 20% down at 5% interest our payment would be $5,583/month, and that's about 37% of our income, not 5x.
The problem, of course, would be coming up with the 20% down, that's $260,000. On our first house we put down 10%, that was $5,000 and that was hard to save up at the time.
Excellent example of the change in housing affordability for 1980 until now based on the difference between home prices then and now.
San Francisco is atypical in that prices have boomed much higher than most of the nations. So the example is extreme, but the concept is sound. Home prices have outstripped income growth everywhere since 1980. In SF it is extreme. In Sacramento or Denver or Jacksonville, not nearly as much but still the same trend.
Paying 14% on a home in 1980 was simply more affordable than 7% at today's home prices, period. I don't understand why so many people dismiss this fact or are not aware of it.
Your case, while extreme, perfectly illustrates the fact that home appreciation has far outpaced earnings growth since 1980, never mind that we all just lost 10% to 15% of our overall purchasing power in the recent bought of mass inflation, so coming up with that monthly mortgage payment now competes with $6 gas and $9 eggs.
I am not fighting today's reality. I am sick of people making it sound like the 1980s were less affordable than today because they are not looking beyond the high interest rates.
Homes were much more in line with incomes in 1980. High interest rates made buying difficult, but high prices today are making buying even MORE difficult.
Home affordability is worse today at 7%, than in 1980 at $14%, because homes are 5x incomes today but were 3x incomes in 1980.
I'm sorry I wasn't very clear in my prior post. I actually agreed with you. Rates were high, but home prices were not. Many homeowners were able to purchase a home at a decent price and, within a year or two, refinance the original mortgage as interest rates dropped. They did. Repeatedly. So, yes, we did have a better deal.
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