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Comment by bluGill | Hacker News Reader

This isn't a high interest rate ecconomy, this is normal interest rates. Rates have been absurdily low for a while so you may not remember it, but history provides a record.

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Is the norm really that home loans are unaffordable even to first-time-buyer DINKs with good-to-decent six figure jobs who just want a place to live? (not an investment property) Currently the mortgage rates are the highest ever since 1989.

Have you personally already purchased your first home? Without family assistance, it would be absolutely brutal and untenable for my children to enter into in this domain at present.

The people at the bottom are getting a remarkably harsh and bad deal these days, even in instances where they have been exceedingly fiscally responsible their entire life. Is this the future the youngsters deserve? My kids are still solidly upper middle class, imagine what this translates to for the lower end of socio economic status.

This seems severely suboptimal. At what point is a serious systemic correction warranted? What is the current generation supposed to tell their children? At some point people's motivation to participate in the system and play by the rules will be negatively impacted. What happens then?

https://en.wikipedia.org/wiki/DINK

> Is the norm really that home loans are unaffordable even to first-time-buyer DINKs with good-to-decent six figure jobs who just want a place to live?

The home loans are unaffordable because the house prices are too high. The median house price in 1989 was around $95K ($230K adjusted for inflation). Today it's about $400K.

Are houses today the same as houses in 1989? Seems like you'd need a much more detailed analysis than median price to compare apples to apples.

The improvements in home construction have diminishing returns. For example my county now requires residential fire sprinkler systems. Such systems aren’t cheap but also don’t provide any real payoff to homeowner on average.

Improved insulation and air sealing is nice, but you’re not going to see anything close to $200k in energy savings over the building’s life vs just blasting your furnace to a comfortable temperature.

Houses certainly have increased in size though.

Given that the median age of a home in 2019 was 39, that puts half of today's housing stock as being built in 1980 or before. So most of "today's houses" are literally the same houses that were present in 1989, just with three decades of additional depreciation. This is even worse in older, populous parts of the country like California and the Northeast that haven't built as many new homes as in the Southeast. In California and New York, for instance, people are squabbling to pay $1m+ for 43-60 year-old homes. People today are paying more, and getting less for their money.

https://eyeonhousing.org/2021/03/age-of-housing-stock-by-sta...

That doesn’t matter to buyers.

If the housing stock is too expensive for the population there can be many causes, and higher quality or larger size housing is just another cause. The causes of the high prices don’t matter to buyers, all they know is they can’t afford to buy. What use is it to them that the homes they can’t afford are better quality?

With the amount of housing turnover in the past few years, to me it seems that plenty of people can afford to buy. Actually an unfortunate amount.

Those same homes you bought in 1989 are still around. Home construction at the time it was built has little to do with home prices.

There's a serious housing shortage.

https://www.npr.org/2022/07/14/1109345201/theres-a-massive-h...

Worryingly, the higher interest rates are making it more difficult to construct the housing we so desperately need in so many places.

There is a housing shortage because large, often foreign, organizations are buying up all of the housing stock.

Mom & Pop trying to get a couple of AirBnB's ain't helping either.

I'm involved in housing politics where I live. I go to hearings, pay attention to what's coming through the planning department. I see what causes housing to not be built. It's NIMBYs. My neighbors. Not some far-off bad guys. The reason big companies got into the housing market is because there are good returns, because it's difficult to build housing. Why? NIMBYs. The best way to stick it to the big companies is to build enough housing.

https://www.theatlantic.com/ideas/archive/2023/01/housing-cr...

Institutional investors represent less than 10% of home sales. Even still, they're buying houses because they realize there aren't enough of them. If we had enough houses it wouldn't be profitable for them to buy them.

I mentioned to my Dad that I was lucky to be able to buy a house for the first time just before rates went up. He told me the story of how he bought his first house in 1977 - the house I grew up in. The rate was 19%, and he was only able to get a loan because he knew a guy who knew a guy at the bank. He had masters degree and a good job, but all the banks turned him down until he found the right strings to pull.

Our long term family home, bought in 1981, was done as a land contract at 16%. Apparently was tough to refinance down to 10% - original owner moved across the country, and was dragging their feet on signing papers, pushing back, etc. They were about to lose a 16% return and delayed for close to a year.

Yes, it's normal when housing prices have massively inflated due to ultra-low interest rates, then rates returned to normal.

If DINKs can't afford it, what does that tell you about the direction housing prices will go?

> If DINKs can't afford it, what does that tell you about the direction housing prices will go?

The ones with capital will buy them, and you will be renting.

Seems like a pretty risky investment. Especially as fewer and fewer people will have anything to gain from the NIMBY policies artificially increasing prices.

The market (and NIMBY regs) can stay irrational longer than you can stay housed.

Historically speaking, investing in property/land has never turned out risky. Initial cost has little significance in total profit calculation as long as you can seek rent indefinitely.

Clearly not since housing prices are falling due to affordability.

And if you look at the capital buying up houses, it's a tiny fraction of all available housing out there.

The correct answer is - just like when housing prices went up with low interest rates, they'll go down with high interest rates.

Housing prices are not falling.

Yes they are.

> If DINKs can't afford it, what does that tell you about the direction housing prices will go?

Elites and wealthy boomers will keep soaking up resources, then prices may become volatile in a southward direction.

In the meantime, the current generation is frozen in place, unable to progress in a rigged game.

Can your kids afford an $851/month mortgage? https://www.redfin.com/IA/Cedar-Rapids/6835-Preston-Terrace-...

Or $1600/month? This has a nursery so they can fix the dink: https://www.redfin.com/MD/Pasadena/3500K-Lochearn-Ct-21122/u...

“Fix the dink” just hit my funny bone for some reason. Now I can’t stop giggling and saying it to myself

> Have you personally already purchased your first home? Without family assistance, it would be absolutely brutal and untenable for my children to enter into in this domain at present.

I haven't, but I'm not a DINK, and have never broken six figures.

The right credit union will make a home loan with no money down, which might help your kids and their spouses. I'm currently paying $3k/month for rent. Zillow says that this could afford a $350,965 home with a 30-year 6.833% fixed rate, including 1.2% taxes at $351/month and $800/year in homeowner's insurance at $67/month, and mortgage insurance at $287/month. Not possible in this area, but possible elsewhere.

Hardly possible in my state! $350k gets you a fixer upper 2br 1bath

That's basically what I'm paying $3k rent for here. Sounds nice. Buying a house like that outright is probably in the $500k+ range here.

Yeah it sucks.

Upper middle class starts at $156,000. They can’t afford a home at that income level?

Source for this?

Historians in 500 years will stare in wonder at the stunning evidence we did not, in fact, build ALL the infrastructure, physical and otherwise, during the last ~25 years of absurdly cheap money.

Most of the world's infrastructure was, indeed, built in the last 25 years. It's just that it wasn't in the West.

Touché.

Well, maybe in 500 years people will have an explanation for why people don't create fundamental things in low-interest times. Lasting investment seems to be very strongly and positively correlated with rates.

Here's a theory for you: the increased cost of capital doesn't cause people to stop seeking or loaning out capital, it just directs that capital toward shorter-term projects. A bridge or a skyscraper pays off a lot faster than a startup.

Isn't it more about returns on lending being really low, so investors are forced to put their money elsewhere, like tech stocks and VC funds?

That too, but the same effect applies to equity investors who want to buy equities for diversification.

How long do you think it takes to build a skyscraper? Cuz it ain't short. Just he zoning, funding, and pre-project tasks can take years.

Well, that's why basically nobody builds them in places like New York or SF. Even so, I think you're underestimating how long it takes to make it to a net profit as a startup. Even in one of these cities, the planning-to-profit timeline is under 5 years.

Even 432 Park Avenue, the new huge luxury tower in NYC, took 3 years. A random startup takes a lot longer to get to the money.

How do you define "fundamental thing"? Are we talking primary production here? Or do you mean a stretch of asphalt road for automobiles? Or a steam turbine for thermal electricity generation? a 3nm silicon chip; the factory that makes 3nm silicon chips; the factories that make those factories; a rocket engine; a mRNA vaccine; an office building; a mathematical proof; an astronomical observation; a tank; a nuclear warhead; a computer algorithm; a song; a child?

> How do you define "fundamental thing"?

Some investment just keep adding to society's wealth, while others have a return and then go away. The first kind is really important because it enables new investment on things that depend on it, the second one doesn't.

Well, good luck trying to attribute an specific value for a child. But for your other examples the classification is mostly straightforward.

What fundamental things do you think should have been invested in during low interest times that were not?

There will be no wonder -- as long as they have a list of F500 companies it will not be hard to understand.

Much like we have records of Chinese warlords or Byzantine princes engaging in rent seeking and breaking the system to cater to their needs, so to is their plain evidence of what and why things played out they way they did.

The low interest rate environment was certainly responsible for the fracking boom in the US.

Because one cannot talk about the recent low interest rate environment without also talking about the quantitative easing environment which pumped trillions of dollars into Banks who figured they had should do something with some of it

Only those who are not aware of construction costs. Counting those costs rates were more like 700% in their US.

The Historians will Honk the Toots in Urbit, praise artificial scarcity, amen.

WTF does "normal interest rates" even mean when public debt to GDP[1] is over 120%, and servicing interest on that debt alone[2] costs taxpayers more than the entire FY23 defense budget[3]??

[1] https://fred.stlouisfed.org/series/GFDEGDQ188S

[2] https://fred.stlouisfed.org/series/A091RC1Q027SBEA

[3] https://www.defense.gov/News/News-Stories/Article/Article/32...

> This isn't a high interest rate ecconomy,

Unfortunately it is for the people who have gotten their mortgages at those lower rates. It's a ticking bomb for many of them.

Interest rates have been falling for hundreds of years, so anything you consider "normal" by historical standards is probably high by current standards.

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