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Comment by cheald | Hacker News Reader

They've doubled in price, but cost per square foot is broadly stable [1], rates are substantially lower than they were 2 decades ago, and sub-20% down loans are much more common than they once were.

A $150k loan in 1999 at 7.6% would cost you $1,059/mo in mortgage payment. A $300k loan at 4% today will cost you $1,432/mo - a 35% increase over the original price, not the 100% you'd expect. Meanwhile, you aren't paying 2x per square foot - you're getting roughly twice as much house as you did before for that price, for only a 35% increase in payment!

[1] This is a smallish dataset, but the trend holds outside of the pre-2008 runup. I don't have that data immediately on hand, though. https://www.clevelandfed.org/newsroom-and-events/publication...

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Your calculations ignore property taxes and any other tax based upon the value of your house.

Your rates also seem off. http://www.freddiemac.com/pmms/pmms30.html claims the average rate in 1999 was 7.44% and in 2018 it was 4.54%. The fed also just raised their rates in December and plan to do more raising in 2019 so expect these numbers to rise.

Beyond that, it doesn't matter if the price per square foot is the same if they aren't building smaller houses. Points like this is like tricks we pull to keep inflation down. All that matters is how expensive is a house that can put a roof over the head of the number of people I need to. We have 3 kids and we were looking for 4 bedrooms. Newer ones in our area are massive 3,000+ square foot structures we can't afford. So we're stuck in a 50 year old 1900 square foot house that we can afford. With a 50 year old house comes all sorts of annoyances such as asbestos, lead paint, and orangeburg pipes.

Sure, there are lots of factors in play. Property taxes vary by county and are difficult to make broad statements about (in my county, annual increases are capped so my property taxes are not assessed based on the retail value of the property, for example). Rates examples were literally just my first Google results to illustrate via some napkin math that the loan rate has a substantial effect on monthly payment that isn't necessarily captured in the list price.

The temptation when we read stats like "the real price has doubled in 20 years" is to interpret it as "the real payment per comparable unit has doubled", when no such thing is true.

I don't know what your market is like, but mine has had a lot of new townhome development in the 1-2k sq ft range. The idea that we're only building 4k sq ft behemoths just isn't true in my part of the country, at least.

50 years is old? Britain here, in my 130yo house.

I'm not sure I'd trust a house that hadn't survived at least one World War and all the weather since.

There are a lot of efficiency, insulative, and electrical system improvements that have been made since then, assuming the developer didn’t cut all the corners.

Yeah, it's swings and roundabouts. We recently modernised my grandmother's terraced house. Positive points:

- high ceilings and windows. Predated Parker-Morris: if you can find one those are absolutely the best. Modern houses are horribly shrunken by comparison, especially when we sell by bedroom count rather than area

- good sound insulation

- solid brick construction (although no cavity wall insulation)

Minus points:

- very leaky of heat

- lead piping embedded in concrete floors

- ancient electrical system (already reworked a few times)

- perilously steep staircase

- bathroom had been retrofitted in the 50s. Yes, the house was built without an inside bathroom, I think it only just had an inside toilet.

I have the opposite problem in the US. All the houses are too big, with high ceilings and giant 2 story foyers. Other than advertising that you can afford higher heating and cooling costs, I don’t understand the purpose of these high ceilings. And the 2 story foyer means the second floor is constantly too warm and 1st floor is too cold as the heat has no reason to stay at the bottom.

> And the 2 story foyer means the second floor is constantly too warm and 1st floor is too cold as the heat has no reason to stay at the bottom.

I understand your nitpicking. It was almost a deal breaker for me when we bought our new home. But we have a zoned system regulating the single unit we would have had regardless. There's no temperature difference now between floors. And with the ability to shut off the upstairs until bedtime, we use about 1/3 more energy to heat/cool 3.5x the space.

Though much older homes do exist, in the US (they're using a "$" in their comment) 50 years +/- 10 years is pretty commonly the average age for a "mature" house where most of the cities the homes are in weren't established until the mid-to-late 1800's. Especially for the suburbs, which are about the age of these homes.

I grew up in a home built in 1954. It didn't survive a World War, but it's had its fair share of powerful tornadoes, blizzards, and the like and has been relatively unscathed since its inception (minus a new sewer line). With timber framing!

+1 in my 100yo house, I’m suspicious of hastily made new developments and prefer a house built when homes were made to last. Of course I live somewhere that gets neither too cold or too hot so...

> We have 3 kids and we were looking for 4 bedrooms

My family was short on bedrooms growing up, so we doubled up. Nothing wrong with that.

Me too, but it’s definitely a compromise, especially as the kids get older.

I’d rather have a slightly lower-quality property than shared bedrooms unless the situation makes that infeasible.

It's certainly preferable to not have to double up bedrooms, but we have to remember that our parents did it just fine. I grew up in a family of 6 in a 1600 sq ft house. It worked just fine, but we'd look at that today and consider it unacceptably cramped.

Demand for space per occupant has risen. It doesn't make sense to expect our parents' price tags when we're demanding larger properties.

There's some evidence that kids who share bedrooms have better social skills.

Historically, the concept of separate bedrooms is very, very recent.

The expected size of bedrooms has also risen dramatically in the last few years. Some are even bigger than the living rooms of houses built in the 1970s.

It's a slippery slope; always needing to be more successful than our previous generations (At a younger age to boot!).

Zoning / development incentives in many places is such that houses of the size typical decades ago can no longer be built.

Having twice a big a house doesn’t help if you can’t afford the 35% price increase.

It's a massive problem. New construction is bigger, so you get to pay extra for heating, cooling and cleaning, and you also have the extra commute because it's located out of town, across the highway, to keep the rabble out. You can't have reasonable size and a short way to work because the urban school district is too run down.

I see. The poster above says value has gone up, but that says nothing of the floor in prices, which is also rising even if at a different rate. The end result can still mean more people priced out of the area and harder times for those in it.

Clearly someone is buying these houses, otherwise the market would readjust for the oversupply and the prices would drop.

So if we have people that can't buy houses, but all houses that do get built get bought, the problem has to be that we are not building enough houses.

  houses of the size typical decades ago can no longer be built

Where is it illegal to build houses below a given minimum size?

Most places have some combination of minimum dwelling sizes, minimum lot sizes, minimum parking requirements, height limits, limits on number of units per lot, etc.

When you add over-wide roads laid out in pedestrian-hostile patterns, additional zoning restrictions on commercial buildings, etc., the end result in many places developed in the past few decades (including almost every recently developed neighborhood in the USA) is to depress density, increase per-unit housing prices, force most residents to travel by car, etc.

* * *

Edit: your other comments indicate you live in San Jose. It seems that minimum home size is not regulated there, but there are many other exclusionary features of San Jose zoning. https://www.spur.org/sites/default/files/publications_pdfs/S...

Repeating the question: Where is it illegal to build houses below a given minimum size? Can't you name any off the top of your head without throwing up other criteria as chaff?

I’m tempted to tell you to take your hostile insulting response and shove it. WTF?

Most municipalities in the US has some kind of minimum dwelling size, sometimes varying by zone. They can be anywhere from a few hundred square feet to about a thousand square feet (or occasionally bigger). Like other local laws, they vary widely in the details.

You can check local municipal zoning codes for whatever specific community you are interested in. San Jose is one of the rare places which apparently does not have such a rule. Though sometimes building codes enforce minimum sizes when zoning laws per se do not – I don’t care enough to go read through the San Jose building codes.

For more general discussion, if you do a web search for “minimum house size” you will get millions of results.

There is a vast amount of regulation at play now. On techcrunch I read an article that said developers now have to use super computers to analyze all the regulations, in order to plan constructions now, all due to over-regulation.

I don't know about the house itself, but I grew up in a town with a minimum lot size of 1 acre.

> but cost per square foot is broadly stable

I've looked at this data before and you are correct, but something sits uneasily for me. I think the thing everyone feels as "everything is more expensive" is that cost per square foot anywhere near an economic nexus has exploded since the 80s. The aggregate numbers that make the cost appear stable include tons of expansion in commuter zones.

My parents were successful professionals, as is my family now. But I know what my parents paid for a 2000 sqft house 10 minutes near an economic hub and a top 20 university in 1985 and that was easily affordable on just one of their incomes. My family now faces a situation where to buy something equivalent in terms of size+centrality both incomes are required.

Absolutely. I think there are a number of factors here, but the most trivial is population growth - we're +90m people in the US since 1985 and we've seen a percentage shift of the total population to the major urban centers - and the simple fact that competition for prime locations increases as a result.

Everyone wants to live in a prime central location with plenty of space and good schools. Who wouldn't? It's a naive reading, but that phenomenon feels very much like a simple econ 101 supply constraint.

I'd be very interested in some further reading on it if you're aware of any though.

I agree with your analysis that it's increased competition for prime locations, but that seems to me purely descriptive. It's not a surprise, but it's still a problem :) And it's a problem that is masked by aggregate measures showing stable cost per square foot because those numbers are not "prime-locale" adjusted.

To be somewhat more precise, what we commonly describe as "buy a house" is actually much more than that. I can buy an amazing house-shaped structure in rural Wyoming for $200k. What I can't buy for that price is a stake in an environment where I want to base my career and family life for decades. The latter is what is crushing millennials.

Surely there are options besides the most prime locations, though. The problem we're describing isn't fundamentally an issue with price inflation, it's an issue with supply constraint. Price is how we decide who doesn't get a scarce good - more people want to live in those prime locations than we have supply for. You could cap prices at $1 and there would still be people who couldn't live there, simply due to lack of supply - we'd have to have some way of deciding who doesn't get to live there, and regardless of the mechanism, there will be people who desire to live there who are unable to.

We can either build more housing - which is a solution in some cases, but has constraints because of the realities of physics, and/or some people choose to live in a less prime location. That doesn't necessarily mean rural Wyoming - it maybe means a less accessible, attractive, or high-fashion suburb, or a midrange city.

IMO, it's helpful to view first houses as a stepping stone to another house - that $300k house in a nice part of town close to transit is a lot easier to get into when you have $100k of equity in your smaller house in a less nice part of town. My perception is that a lot of first-time buyers tend to have this idea that they must either buy in the perfect location or nowhere at all, then find that they can't meet the prices needed for that location, then just decide that owning is impossible. I don't know how true that is, but that's how this continuing discussion on my generation's home ownership seems to come across to me.

What's the point of buying just to own a house? It's not diversified and correlated with your job.

Historically it's been one of the most stable stores of wealth and predictably dependable forms of investment. You're going to live somewhere, so if you can capture your cost of housing as equity rather than paying it to someone else, you have an opportunity to build wealth reserves.

As you've alluded to, location is a factor. Specifically: the cost of land. Regardless of the price of building each square foot of housing, rising land values inflates the total cost of buying land to put that housing on. This is partially due to population growth. But it's almost entirely a self-inflicted problem. That problem is zoning.

If a slice of land can only be used to build a home for one family, and that slice of land is near things people want, it drives up the price of housing. If you were able to build a multiplex or condo tower on that land, the land would probably cost even more, but spread over more dense housing the price of land per square foot of housing would be much lower than for the single family home.

A second problem that's harder to address than waving a city planner's wand is infrastructure. Density requires transit (roads or otherwise), electricity, schools, sewers, water, etc. If municipalities don't plan for that it makes growing hard.

>A $150k loan in 1999 at 7.6% would cost you $1,059/mo in mortgage payment. A $300k loan at 4% today will cost you $1,432/mo - a 35% increase over the original price, not the 100% you'd expect. Meanwhile, you aren't paying 2x per square foot - you're getting roughly twice as much house as you did before for that price, for only a 35% increase in payment!

But I don't want twice the floor space in an exurb. I want a modest apartment or condo near transit.

So does everyone else. Supply, meet demand. If you don’t want to pay a premium, buy something with lower demand.

That's not quite true. Most people don't want to live directly in the urban core (though I do), and the supply of housing in both the urban core and inner-ring suburbs is artificially restricted. Hence all the talk of "missing middle" housing (ie: https://www.vox.com/policy-and-politics/2018/9/24/17896482/b...).

The trend is that many professional people want to live in the urban core, because they are delaying having kids mostly.

Missing middle housing is all about the disruption of the boom/bust cycle of housing and long time erosion of middle class earnings, plus a decreased supply of tradespeople that has ballooned up skilled and semi-skilled labor. We have a glut of mediocre college educated people and a shortage of people who do things -- my brother in law is an electrician, his billing rate is up to $150/hr, and he has a 6 week backlog of work.

It's not economical to build a house anymore like it was in the mid-90s -- even if you own the land. We're being flooded with medium density, carve-out rental housing developments because you need that scale to make money, mostly through trading of tax expenses.

Those developments suck because they don't integrate with the street grid, waste space and are universally low quality buildings. When you pass the 15-year mark and interest/tax write downs go away, they will naturally turn into low-income as the landlords profitability melts away. Around that point, these developments flip over to a succession of shittier operators.

  a 35% increase

More like a 5% increase when you factor inflation and compare in real-dollar terms.

The example numbers were already in real (inflation-adjusted) terms.

I make $70k a year, I have a credit score of 814 the bank won't give me a loan for more than $175k. The cheapest housing in my metro area is about $300k. It doesn't matter that a the cost per ft^2 is stable or that a $300k loan is @ 4% when I can't get a $300k loan.

If you can't get a 300k loan with 70k income there's something else going on.

Either you have no down payment, you have a large pre-existing debt, or you have some other monthly cash drain.

at 70k annually you make ~5.8k a month.

36% debt to income ratio is normally acceptable, so you can afford 5.8 * .36 = 2.08k a month in payments.

That's a 400k loan at 4.5% interest with a 30 year term.

To be safe, and include insurance, taxes, other - you should be able to get a loan for 350k fairly easily.

That you're capped at 175 implies you have some other form of monthly debt in the $1100 range. Child support? College loans? Other?

---

I'll edit this to add: I don't personally recommend taking the maximum loan you qualify for. It's a good way hamstring your ability to continue to save and invest, and it makes it more likely that an abrupt job loss or change of financial circumstances puts you in a bad spot.

~5.8k? Maybe pretax, my month to month is more like 3.5k after taxes, insurance, 401k, and other withholdings. I've paid off my CC debt, no student loans, no alimony or child support. I have a car loan of about $500 a month for $20k that I am currently aggressively paying off @ $1000 a month. But what I was approved for was before I got the car. I do not have a down payment though, the rent here takes up half my pay check.

Mortgages are usually based on gross income not net income.

That suggests to me that your existing debt-to-income ratio is too high. The conventional limit lenders will consider is a 36% pre-tax debt-to-income, including mortgage obligations. If a lender won't consider more than $175k, that suggests you probably have substantial existing debt obligations. If you don't, ask around to find another lender. Realtors generally have brokers they work with and recommend.

I don't know how to make the calculation that you are describing.

Add up all your monthly debt service obligations (credit cards, student loans, car payment, etc - use the minimum payment). This is your current debt obligation.

Your pretax monthly income is $5833. 36% of that is $2100. The maximum a lender will loan you will result in a monthly payment of ($2100 - your current debt obligation).

For example, if you have $1k/mo in debt service, you have $1100 margin left in your debt-to-income ratio for a mortgage. At 4%, that's a maximum mortgage amount of roughly $145k.

If you have all $2100 to allocate to the mortgage, that allows a mortgage in the $300k range, varying with property tax and insurance rates.

https://www.bankrate.com/calculators/mortgages/new-house-cal... is a handy tool for figuring out how much mortgage you can afford. https://usmortgagecalculator.org/ is another good resource.

Don’t go to the bank go to a broker.

You can get a (not so great deal) loan with much higher limits.

Glad we have a reasonable person here.

Ive done the math for Food as well, the prices arent 'going up' like people claim.

The only thing that has went up, is inflation.

??? Food is not an appreciating asset. An increase in food prices, as part of the CPI, is by definition, inflation. Home prices, in contrast, have for a long time risen much faster than inflation, at least in many areas.

Housing costs are included in the CPI, as well. In fact, they are about 40% of the total CPI weighting.

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