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Comment by throwaway09223 | Hacker News Reader

There are three kinds of lies: lies, damned lies, and statistics - Twain

Key observations:

* All else being equal, we would expect 50% of homes to be unaffordable to a median buyer. This is the reasonable base figure (not zero). We would expect 2 in 5 if everyone were buying homes they could properly afford.

* But they're comparing median county incomes to homes in a metro area. For example they call out Boise, ID but use income from Ada county (already 20% lower!). This issue alone could account for the difference.

* There is also an issue of counting homes for sale, vs homes in general. If more expensive homes are sold more often (or, are listed for sale longer - say years - because they're unique) then we will see a skew towards more expensive homes being listed more frequently. It won't accurately represent the actual underlying home inventory.

I recommend not reading too much into these numbers.

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You’re responding to things the article isn’t saying. It’s a pretty plain and honest article. The facts are genuine and the conclusions have nothing to do with what you wrote here.

It’s a Redfin blog post addressed at people looking to buy a home, not a think tank study of home ownership.

It’s putting numbers, accurate and meaningful ones, to the experience a prospective buyer has when looking for a home right now.

For buyer’s with a median income, only 21% of listings satisfy traditional standards of affordability and it’s worse now than in recent years. No wonder it’s so frustrating when you’re looking for a house lately!

That’s literally all this is saying. And it’s no lie.

> For buyer’s with a median income, only 21% of listings are satisfy traditional standards of affordability and it’s worse now than in recent years.

I think parent is disagreeing - they point out that 21% of listings in a metro area meet the standards of affordability for everyone in the county. But not everyone in the county has a city job that pays more, and not everyone in the city is willing to live out of town. Thus, more than 21% of city folks can afford a house in the city, and more than 21% of folks living in the country can afford a home in the country. Parent is arguing insufficient granularity, and that's a fair criticism.

I argue of course that everyone should be able to afford a place in town, thats a function of zoning. Federalize zoning, let anyone build whatever they want on their land without asinine parking minimums and setback rules - and years of prostrating yourself in front of council only for them to tell you to get stuffed - and watch the problem sort itself out.

The builder's remedy should just be the status quo and then we could finally stop talking about this.

Nothing in the article is about percentage of people. It’s not saying anything close to 20% of group X can afford anything.

It’s saying only 21% of listings meet the standards of affordability for that county.

That could easily be simply because houses that don’t meet that standard are on the market 5x as long, and you’d see this effect even if the median buyer could afford the median home overall.

I see, I retract my point but since you replied I'll keep it up for posterity.

I wouldn’t be so sure about unregulated market “solving” anything, but I definitely agree that current zoning allowing eg only for single-family houses is absolutely unsustainable. It’s impossible for everyone or even majority to live in a separate house.

Build whatever you want becomes the most profitable houses to build/sell. Monster homes where single family homes were. Seedy businesses beside schools.

You probably want to have some planning.

This is a view on unregulated building that I don't get how you came to it. If you're free to build whatever then the most profitable thing is probably a townhouse. Whatever marginal gain might be had selling one fool a bigger house than anyone needs is less than the gain of selling two or three people a far more modest, somewhat shared living arrangement in the same floor space. Not exactly urban density, just well, town density. I legit don't know what sort of seedy business you reckon is held back merely by regulations right now. Put another way, as a rational profit seeking venture, I certainly can't see any such business wanting to set up by a school in particular. Kids aren't known for their disposable income and there's no real benefit towards picking a controversial position.

But in any case this is all solved by Tokyo minimum nuisance zoning. In short, what that means is you can't build your seedy business in your school zone but you can put your school in your seedy business zone. The zones don't directly prescribe how land can be used, only limits the amount of tolerable disturbance allowed per neighborhood. Things get built where they otherwise wouldn't, but no one has to deal with more annoyance than they bought into.

Of course people living in the city can afford to live in the city... Otherwise they wouldn't be living in the city.

I think it's still interesting if we consider that many people in the county are pushed out of the city because they're priced out, and have to live further away and suffer a long commute.

We can't all be above average.

The implication if 21% of listings satisfy traditional standards of affordability for the median buyer is that the supply of homes is 1.21 * 0.50 = 60.5% of the homebuying population. That's low, but not too far off of historical norms [1].

Apartments are a thing. Historically (post-baby-boom) about 35% of the U.S. population has been renters, unable to afford a house at all. For some reason close to 100% of the population believes they are not going to be in that 35% when they grow up.

[1] https://www.statista.com/statistics/184902/homeownership-rat...

Sorry, you may have some valid point in mind, but your formula doesn’t make any sense and the momentary home ownership rate is simply a floor on what share of people might own homes “when they grow up”. Everyone might die in a home they own someday and the momentary home ownership could still be very low. It doesn’t say what you think it says, here.

Are you basically saying that the article just noticed a bias in the listings ?

Because that is addressed by the comment you're replying to.

> If more expensive homes are sold more often (or, are listed for sale longer - say years - because they're unique) then we will see a skew towards more expensive homes being listed more frequently

I think this is an interesting fact about how we communicate. You can be 100% factually correct and yet most of your readers will reach a conclusion that you may have not written explicitly. Not always the author intentionally misleads; perhaps the author themselves are mislead. Often the title itself primes the interpretation of everything else (and often authors don't chose the title!).

I’m saying that the article is very straightforward in what it’s saying and who it’s saying that to, and that the OP is themselves tilting at a windmill, mistaking it for a giant. The title hasn’t misled anyone but the OP and the people the people they’ve imagined themselves defending.

But what you're saying simply isn't true.

The article clearly explained their faulty methodologies and this is precisely what I've pointed out. In fact, you are tilting at a windmill, reading more into my comments than what I've written. Projection, much?

> You’re responding to things the article isn’t saying. It’s a pretty plain and honest article. The facts are genuine and the conclusions have nothing to do with what you wrote here.

I see him as trying to get out ahead of conclusions the author had too much professional integrity to draw but that the internet peanut gallery will draw after speed reading (if that) TFA in search of numbers and then irresponsibly mix and matching those numbers as if such behavior will yield insights.

> The facts are genuine

Yet there are other facts/statistics that show, the reason home prices are elevated (in some areas) is demand

Therefore, somebody is affording them?

Indeed! Do you think it’s possible that there are other sources of demand for homes besides households?

No, it is not possible.

All demand is derived from households living in homes, regardless of whether the households are purchasing them directly or renting through an intermediary (long or short term).

There are no other uses for a home. No other source of demand across the market.

It depends on zoning. Rarely houses are used as storefronts, museums, or businesses such as psychologists and dentists offices.

Other times houses are used by rich mostly-foreigners as places to stash cash. And not all of these investors care whether the house is occupied by a renter.

These aren't large uses of houses, but they are some.

> All else being equal, we would expect 50% of homes to be unaffordable to a median buyer.

Sounded reasonable on first and second reading. But now I question why. Would 50% of avocados be unaffordable to the median buyer? Would 50% of private jets?

I'd argue that more than 50% should be affordable to a median buyer, on the basis that not everyone lives in the most expensive house they can possibly afford, and in the middle of the house pricing range there are multiple homes available at any given price.

Of course, there's also a large set of people who cannot afford to be buyers [in areas suitable for them to live] for various reasons and this median income dataset includes them. Not entirely sure they've used median household income and not median individual income either

Good point. I think the answer is that the definition of market is ... flexible. Avocados are a commodity and cheap enough that yeah everyone in US can afford one. Not true for global population living on a dollar a day....

Houses are probably more like a car market - it's designed to cover everyone, and so there is a percentage that is unaffordable - and that I think is the real point - the orignal article kind of assumes all houses should be affordable - but that's not true. The OP argues that only 50 % are affordable - that's kind of a guesstimate and think the percentage is more likely similar for cars - not sure what it is but let's guess 80%.

Add in fact that affordability is defined so ways - percentage of incame and will someone give you mortgage and most of the disagreements go away

> Houses are probably more like a car market - it's designed to cover everyone

If it is designed, is it designed correctly?

I am concerned that pro market position wants to have it both ways, sometimes claims its designed and sometimes that invisible hand knows best.

They seem to be unwilling to examine market failure and fix prohlem before they result in disasters like 2008 did

An interesting puzzle. Raises questions about why the definition of affordable is "a listing ... [where] the estimated monthly mortgage payment is no more than 30% of the local county’s median income.".

How did this figure get picked and what does it really mean? In a wealthy district where people are saving a lot of money, obviously they can afford, in the literal sense, interest payments that are higher than that.

Yeah, I never understood the 30% thing. You need to live on what's left over. If "minimum non-housing living costs" are , say, 20k/year, someone who earns 30k can only afford to spend 33% on rent, but someone earning 100k could afford spending 80% of their income on rent (if they chose to do so).

The 30% thing is completely arbitrary and a massive distortion of reality.

Conventional mortgage qualifications are typically 36% DTI. Debt to income ratio is (PITI + all other monthly debt payments) / monthly pre-tax salary. PITI is principal, interest, property taxes, and mortgage insurance.

That's the rule, but what is it based on? Why does it need to be proportional to income? It seems pretty arbitrary.

It would be more correct to use actual living costs in a given area (food, transport, etc.).

https://selling-guide.fanniemae.com/Selling-Guide/Originatio...

It is set by the organizations that purchase mortgages from the bank. If the borrowers don't meet these guidelines they won't buy the mortgage and the bank would need to hold it, which they typically don't want to. See FNMA and FHLMC.

"Would 50% of avocados be unaffordable to the median buyer?"

Avocados are homogenous. One is generally as good as another. It's hard to convince someone to pay significantly more for an identical product (although- it's possible through marketing and there are boutique produce suppliers with wildly unaffordable prices. Specially imported/handled fruits and the like which aren't found in grocery stores)

Homes are not homogenous. Real estate values vary wildly in value based on location, size, and other characteristics. This will always be true because real estate is inherently a zero-sum system. A skyscraper will have drastically different prices for units along the side of the building with the best view - or near the top, etc.

The product is inherently unequal with large differences in demand between each type of unit, so prices will always be unequal as a result. People with more money will always be able to bid higher than people without. This dynamic exists no matter how many homes are built.

Every response seems to say that avocados aren't houses. No-one wants to touch the private jets question.

Where did you get the %50 figure from?

It's because the private jets question is stupid. Jets aren't affordable to a median wage earner.

"Where did you get the %50 figure from?"

It's literally the definition of a median.

Yes, you can use the median wage earner to make statements about the 50th percentile wage earner. What does that have to do with homes?

You have not explained how you've connected the 50th percentile wage earner to "50% of homes".

Bringing up other unrelated items which obviously don't have a %50 <-> %50 mapping should have made that clear.

'You have not explained how you've connected the 50th percentile wage earner to "50% of homes".'

Yes I did. It's the second paragraph of this post. You may want to read it again keeping in mind your question has already been answered: https://news.ycombinator.com/item?id=35041925

"Bringing up other unrelated items which obviously don't have a %50 <-> %50 mapping should have made that clear. "

Incorrect, as I've already explained in the above post. Eggs are a fungible commodity, homes aren't.

There's plenty of facts I'm willing to take axiomatically at face value: * Avocados aren't houses * Eggs are fungible * Homes are not homogenous * Half of all earners earn above the median * Half of all earners earn below the median

> as I've already explained in the above post. Eggs are a fungible commodity, homes aren't.

So all I have to do is find a non-fungible commodity X (which is not as "silly" as private jet), and it will follow that 50% of X will be unaffordable to the median buyer?

"So all I have to do is find a non-fungible commodity X"

No, that's a contradiction in terms. Homes are non-fungible, non-commodities. You'll also need something in broad demand with a fixed supply.

Very few people can afford the house they want.

Housing is viewed as an investment, not an expense.

People generally buy the most house they can afford - but not the biggest avocado they can afford.

"most" does a lot of work for you there.

People buy house for a plethora of reason, walkability, school district, commute, safety, etc. and that's not even getting into anything about the actual house! square footage, back yard, front yard, garage, bathrooms, bedrooms, etc.

People want the most of what they value but two different people with the exact amount of money to spend on a house would likely choose different houses that they both consider the "most". And if you give those people the same amount of money and tell them they must buy a house but they can keep any money they don't spend, they'd probably make a different choice, buying "less" house than the can afford.

People generally buy the house that the like the most that also fits their needs/wants, same with avocados. Sometimes I buy them ripe because I want to eat them today, sometimes I buy want them for a few days in the future for a specific occasion but not more than I can use. Sometimes I just buy them because they're on sale and I like them.

> All else being equal, we would expect 50% of homes to be unaffordable to a median buyer. This is the reasonable base figure (not zero).

Not so. In a market where new homes are produced until prices fall below the construction cost and construction costs are modest, it's possible that a large majority or even 100% of local homes could be affordable to the median buyer.

Only if there is zero market segmentation going on. My area is seeing a large number of new units go up, but they range from developments with no units below $1.5M to where all units are below $600k.

And even if you saw uniformity in the housing stock going in, the existing housing stock is going to vary. My parents just moved from a small city with a super depressed housing market. Current listings range from $90k to $900k- even in bad markets there are pockets high prices.

Still possible with market segmentation.

Suppose the median home buyer could afford a $300,000 house, but the construction cost for the median existing house is $50,000. $200,000 houses then might exist and the median buyer could afford them, but maybe they have better uses for $150,000 than to buy a house with twelve bedrooms when they only need three.

> but maybe they have better uses for $150,000 than to buy a house with twelve bedrooms when they only need three.

Especially when a proportion of households are older people who are downsizing. This isn't the Baby boom era anymore when the vast bulk of the home buying population is going after houses based on location to schools or jobs. The locations important for older people aren't exactly the same as for younger people.

1. Different houses will be on different sized lots with different locations. This will create variance in price.

2. Different houses will be different sizes, made with different materials. This will create variance in price.

3. This market is oversimplified. Construction costs can rise if too much construction is happening (competition for labor and materials). Lower housing costs would attract buyers into the market that don't currently exist, driving up demand. Affordability is impacted by the cost of financing, which is rising.

4. New construction housing prices are actually really close to land value + construction costs. If you can find a way to make construction costs more modest then you have a fantastic future in real estate development.

> This will create variance in price.

Prices can vary and still all be affordable. Everyone isn't required to buy the most expensive thing they can possibly afford.

> New construction housing prices are actually really close to land value + construction costs. If you can find a way to make construction costs more modest then you have a fantastic future in real estate development.

Zoning and regulatory changes.

> This market is oversimplified. Construction costs can rise if too much construction is happening (competition for labor and materials). Lower housing costs would attract buyers into the market that don't currently exist, driving up demand. Affordability is impacted by the cost of financing, which is rising.

Lowering the cost of new construction is the premise. Ramping up construction capacity is a short-term issue, after which costs may decline further from economies of scale.

"Lower prices increase demand" doesn't result in high prices because if the price remained high there would be no increase in demand. What it causes is an increase in supply, since suppliers can profitably build even more housing at that price and will continue to do so until that is no longer true.

Higher interest rates have a largely neutral effect on affordability because they cause sale prices to decline.

> Prices can vary and still all be affordable.

Some percentage of the top of the range will always be unaffordable to the median income. Whatever a high-floor apartment overlooking Central Park costs is something that a median income won’t be able to afford. (IMO, that’s totally fine/normal.)

Yea it seems unrealistic. I imagine many people buying a home at $N would prefer to upgrade finishings or increase the size of the dwelling, or put in a tennis court than to actually pay less than $N. You can almost indefinitely add marble counter tops or antique bricks to increase the cost of a home. This luxury side of the market is actually considerable.

> Some percentage of the top of the range will always be unaffordable to the median income.

Maybe not in Manhattan, but you can certainly imagine some more modest town where the median house and the highest priced house are priced within the same order of magnitude and the latter is still affordable to the median buyer.

Location still has value.

1) I would expect that the typical buyer isn't maxing out what they can afford just on a home. So all else being equal I would expect far less than 50% of homes to be unaffordable to a median buyer. Well maybe not "expect", but definitely hope.

And you're writing "median buyer", when the article is talking about "typical household".

The rest of what you wrote are good points. I would like to highlight the article headline: "There Were Half as Many Affordable Homes for Sale in 2022 as There Were in 2021". Hopefully this is temporary.

> 1) I would expect that the typical buyer isn't maxing out what they can afford just on a home. So all else being equal I would expect far less than 50% of homes to be unaffordable to a median buyer. Well maybe not "expect", but definitely hope.

Redfin defines affordable as

> We define an “affordable” listing as one where the monthly mortgage payment would be no more than 30% of the county’s median income. We estimated the monthly mortgage payment for each listing using the average 30-year-fixed mortgage rate during the month the home hit the market, according to Freddie Mac’s Primary Mortgage Market Survey. We assumed a 5% down payment, private mortgage insurance of 0.75% of the list price and homeowner’s insurance of $70 per month. We also factored in property tax data, assuming a tax rate of 1.25% of the list price if no record was available. We restricted our analysis to single-family homes, condos and townhomes with two bedrooms or more.

Many households are in a position to put more than 5% down or pay more than 30% of their household income in a mortgage. This is far from "maxing out"

Well, unless you’re already in the stratosphere of wealth where you you can take advantage of other financial instruments available to you like interest-only loans, jumbo mortgages, or stock/non-salary collateral (which by definition would put you outside the definition of a “typical household”), most banks will typically refuse to underwrite a mortgage that pushed up against the 36-42% debt-to-income ratio, which includes things like credit-card debt and other recurring payments, no matter how great your credit is. A 30% mortgage-to-income ratio, or even a 36% ratio if you have great credit, only leaves you around 6% for other debts before you hit that ceiling — which is another reason why something as standard as, say, student loans (especially the income-based payment ones) will lock out younger households from getting a mortgage, even if in their view they could still maybe make ends meet.

So even if a household “could” afford increased payments, good luck getting something as risk-averse as a bank to fund you.

Maybe if banks started offering 40 year (or even 99 year) mortgages, like they do in some EU countries, that would push the DTI threshold lower (though of course, you end up paying much more interest in the end)? But right now the US Government/Fannie Mae won’t underwrite loans which offer those terms, so here we are.

"All else being equal, we would expect 50% of homes to be unaffordable to a median buyer."

Unaffordable? Why? There is a difference between "dislike" and "unaffordable." I'd expect the median buyer to want a house that is better than what 50% of buyers will settle for, but that is not the same as "unaffordable."

If a society does a good job of providing housing then 100% of housing should be affordable.

Put differently, if housing is affordable for the poorest citizens, then it is affordable for 100% of the population.

> There is a difference between "dislike" and "unaffordable."

You hint at something here that I see a lot of in my market... lots of other agents will talk about "inventory" and will push for more construction, but they are using that as a short hand for the real problem. The problem at least in my market is that there are a lot of houses that are obsolete in some way, or quite simply undesirable in a way that has made them obsolete. Unfortunately, I see a lot of new construction that I'd also call undesirable - people will buy them because they don't have anther option, not because the houses actually have desirable amenities. Case in point - an idiot builder is putting in a new development in which all the houses are pointed the wrong direction, IE: they don't have views to the mountains because the developer was stupid. Additionally, the houses are priced $100K above anything else in the community but the build quality is very low. Brilliant, right? Point being - this leaves me as a real estate agent with a bunch of useless crap that buyers don't want.

"If a society does a good job of providing housing then 100% of housing should be affordable."

This can never be true, it's a mathematical impossibility.

Housing is not equal. There are always preferred units. A skyscraper will have a side with a better view, people will prefer to live near the top rather than the bottom, people will prefer bigger units with better amenities, etc. It's impossible to solve this by "providing housing" because no matter how much you build it cannot solve the issue of relative value.

So no, housing cannot ever be 100% affordable under any kind of market economy system. People with money will always be able to out-bid people without. People will always be able to construct homes which are better than others -- and this is a very good thing!

You have a weird theory that ignores actual history. Most of the West was able to offer society affordable housing for much of the post-war period. And you are, again, confusing a preference with "unaffordable" which is an absolute.

"You have a weird theory that ignores actual history."

Mmm, nope. I've said that 50% of homes would be affordable (or unaffordable) to the median, which was true then and is still true now.

You're the one with a not only historically inaccurate but also mathematically impossible theory, that 100% affordability might be possible. This has never, ever been the case -- nor can it ever be.

"Most of the West was able to offer society affordable housing for much of the post-war period. "

And at that time, pray tell, could median wage earners afford to live in any home they wished? Were median wage earners able to live in mansions? Anywhere they wished?

Of course not. Because it has never, ever been the case in American history that "100% of housing" were affordable to someone with median income.

"And you are, again, confusing a preference "

No, I am not. You, however, seem to be confused as to your own claims. Why don't you slow down and re-read what you wrote -- it's completely ridiculous.

this is a surprisingly good point.

Why 50%?

For an exaggerated example, what percentage of a dozen chickens eggs are unaffordable? Probably the top 0.00001% - some kind of rare egg.

What percentage of private jets are affordable to buy outright?

Even with houses: what percentage in SF vs Detroit?

Point is there is no base figure, there is just the figure.

Because there is a value gradient. Eggs are generally equal, fungible. Real estate is not - there are strong preferences between different units.

If there is a value gradient, people will be willing to pay more for the more valuable units, raising their price relative to less desirable units.

This same question was asked and answered above in more detail: https://news.ycombinator.com/item?id=35041925

I don’t know about grocery stores in your area, but I can easily find egg cartons with 2-3x price differences sitting next to each other in my city. Most people (the median) buy the cheapest. But the average cost of sale is slightly higher since a fraction are willing to pay much more.

> All else being equal, we would expect 50% of homes to be unaffordable to a median buyer.

Assuming everyone is buying the maximum they can afford.

FWIW: As a real estate agent, what I observe is something kinda sorta bell curve shaped. At the lower end of the economic spectrum, people are generally buying the max they can afford - because they don't have a choice but to go all in to be able to afford something. The upper middle class, if you will, tend to not buy at the top of their budget because they know they can't afford what they really want and they are worried about becoming house poor. Above that point, I see people not spending to their max only because they can't find the properties they want and/or they are holding back in order to make updates / upgrades. Or said another way - if you can afford $10MM, you are going to be selective in how you spend your money

Anecdotal of course, but jives with conversations I've had with other agents.

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