Mortgage interest rates were 14% in 1980, they are less than 3% now. This explains much (but not all) of the rise in the nominal cost of housing compared to wages. When people bought $50,000 houses in the nicest parts of Palo Alto in 1975, other people thought they were crazy because of the interest rates.
$100k house, 14% interest, 30yr fixed: monthly payment of $1,427
$235.3k house, 3% interest, 30yr fixed: monthly payment of $1,427
Now that house now costs $706k in NYC and $932k in SF... the problem is supply.
Nationwide, it takes a higher income to buy a home than it use to (median sales price / median income): https://fred.stlouisfed.org/graph/?g=FYMk The problem is even worse in prosperous cities.
Most people don't pay the median sales price outright. They pay it in 360 installments.
Low interest rates have doubled housing prices but they didn't double financing costs. Speculators merely predict the fundamentals: A market with little supply and huge demand.
I think the housing prices are high because the market can get away with it. If I'm selling a house, new or old, I'm gonna price it at what the market values it at, even if it cost less to produce or if I didn't pay that much for it. And the value of it will keep going up as long as there appear to be buyers for it, and most cities in the country aren't losing value as long as the economy grows.
There was outright fraud happening in the years leading up to 2008, with people writing down false incomes and assets, and underwriters looking the other way on verifying them.
As for the underwriters and the executives who instructed underwriters to look the other way? I also do not remember them going to prison, but I also do not know if there was any evidence of their intent.
The beauty of many white collar crimes, where you can always claim you made an unintentional mistake and you are not dumb enough to write an email incriminating yourself, but rather talk it out over lunch in an all party recording law jurisdiction.
These days it's hard to imagine not borrowing as much as possible because prices are so high and rates are below inflation. But back then why wouldn't someone, say, live with their parents until they can buy that $50,000 house in Palo Alto entirely from their savings? No doubt that seemed like a lot of money back then. But regardless, at some point, interest rates get high enough and principal low enough that you might actually choose not to borrow money.
Are they just subtracting here? Because that's not how percentages should work.