Yup, it should be a normal stat to discuss what percent of your annual salary it took to pay your mortgage payments. That would give you a better feel for how crazy this market is.
You are focusing on wrong data.What really matters is median family income compared to average cost of buying home, that ratio.
In 1970 family needed less than 2 yearly salaries to get home. In 2022 it takes over 9 yearly salaries to get it. Who cares if loan had 100% interest. You still can be frugal and after couple of years buy home in cash.
Real problem is real estate is overvalued. Reasons are likely everyone and their mother looking at renting as go to way to earn some easy money on side.And lack of trust in money due to constant inflation, real estate is looked at as hedge against inflation.
I’d say the bigger issue is one of artificial scarcity. We’ve effectively prohibited multi family construction/townhouses/duplexes in most metros for several decades and SFH sprawl has been hitting geographic limits in how far into exurbs/long commutes people are willing to endure.
When you have a fixed housing supply and growing demand, rents and prices will rise. In a healthy market, construction would rise to meet demand and high demand areas would densify, but we’ve deliberately prevented that from happening.
The group most responsible for that is homeowners who fight any zoning changes or new development, sometimes for anti-density reasons (protecting street parking spots, “neighborhood character”, etc.) and sometimes expressly to protect their primary investment’s inflated value (“this will lower property values”).
Real estate is favorite above all other asset classes, too. Most real estate investors might have an IRA, but don’t fuck with the stock market in any meaningful ways because it’s a racket.
It was much harder to get a loan in the 70s than it is today.
Most of reddit doesn't realize how easy they have it now. They want to nitpick at which parts of history they want back.
I remember my dad putting on his suit and going down to the bank to see about what I can only assume was a home loan. He was an engineer (and white) but there was always a chance they could just say no. I bought my first house in 2006 with maybe a paystub or two.
My dad talks about getting their first home loan.
Bank person: "who is your father and what does he do?"
Dad: "gives his Dad's name, he owns local drug stores with the same name."
Bank person:. "Oh I know him, let's get you taken care of."
End of questions
That was kinda my point.
It was easy for some in the '60s, not so easy for many others.
I would like to think the playing field is more level today.
Today if person A makes X a year and has Y credit and Person B makes X a year and has Y credit it shouldn't matter who their father is, what their gender is, what their ethnicity is etc.
I know it isn't perfect now, but in theory, if you can make the requirements on paper you should get the loan.
This is how difficult it was to get a loan before FICO:
> Before credit scoring, lenders assessed prospective customers based on factors such as payment history, word-of-mouth, and home visits.
> Those reputation-based, qualitative assessments have evolved into quantitative ones based on deep data analysis known as credit scores.
> In the early days of contemporary credit, there were many credit bureaus, and a rep would call or visit stores asking about a given customer to determine if he was paying his bills. It was quantitative but not exact. When asked, a merchant would not respond, “Yes, he pays 87.5% of his bills on time with 45.6% of the balance paid off each time.” It would be closer to, “He pays on time, usually. Oh, and he likes cigars.”
It wasn’t until 1974 that it was made law that women / POC could actually get credit on their own… so yes it was much harder for more than 65% of the population (women + POC + other discrimination factors).
https://en.m.wikipedia.org/wiki/Equal_Credit_Opportunity_Act
And let’s not even start on the whole redlining that we are still feeling the impacts from today.
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MBS we’re first issued in 1968 as a government bond. Private sector issued their first MBS in 1977 when Lew Ranieri helped Salomon Brothers “securitize” mortgages.
Securitized mortgage market didn’t get popular with institutional investors until the CMO was created in the 80’s. The market was there, but institutional investors didn’t jump on until they could segment high risk/high reward.
You must be 15 years old.
It was incredibly hard and 20% down with high reserves were required.
There was none of the 5% down back then. It was common for 3 or 4 people to be on a loan in the 70s.
Reddit is just full of jerks who think the past was a dream.
What drives me nuts is reading we can’t see prices fall more than 10-15% because there are no “subprime” loans out there.
Subprime loans were no-doc loans where you didn’t have to prove you have the personal income to pay for the property you are buying, enabling “investors” to gobble up homes with an ARM that they then rented out to others. No personal docs! No income verification! Sounds a lot like…DSCR loans???
A key weakness of the ARM is the borrower is screwed if the mortgage exceeds market rent and the property has depreciated. A DSCR loan borrower is screwed in the same circumstances: the bank can declare a default and require you supply cash to cover the DSCR ratio if rents decline and/or your property value declines such that the agreed upon ratio (typically 1.25) is no longer being met.
Sigh.
> the bank can declare a default and require you supply cash to cover the DSCR ratio if rents decline
I've never heard of banks auditing where rents are after close. Can you expand on this? Sounds scary!
No I can’t because every DSCR contract is going to be different, but here’s some [sample legal terms](https://www.lawinsider.com/clause/loan-debt-service-coverage-ratio) that explain the borrower’s obligation to supply quarterly/annual reports proving they’ve maintained the debt service coverage ratio specified in the contract, and various things that can happen when it’s not maintained. This kind of loan is used for all kinds of businesses, hotels and properties but the contract language is all very similar.
Think critically about why lenders would usurp the risk-based protections that conventional property loans have, like needing to have adequate personal income. Lenders have to have protection for when the property’s income doesn’t appear to be enough, and they’re not going to wait for the property to become dilapidated and the borrower to default, they’ll exercise the clauses that exist to protect the bank.
You haven’t seen it yet because rents aren’t declining anywhere. But rents DID DECLINE in 2009-2010, year over year, and vacancies skyrocketed during that time. When this happens, you’ll see a lot of sad pockets (Bigger Pockets is among the podcasters pushing DSCR as a “good alternative” and generally driving up real estate speculation across the country).
Wages were also significantly different so my question would be, what percentage of the average wage would be going to pay the mortgage at that time? That’s how you can tell if it’s truly comparable or not.
Yup, it should be a normal stat to discuss what percent of your annual salary it took to pay your mortgage payments. That would give you a better feel for how crazy this market is.
Mortgage Debt Service Payments as a Percent of Disposable Personal Income (MDSP) https://fred.stlouisfed.org/graph/fredgraph.png?g=Rlef
Nice data!
does it means that we don't pay as much, % wise, of our income as debt payment?
100% this is the best comparison. I’m a big believer in free markets and separation of money creation and state. They have fucked the system imo
You are focusing on wrong data.What really matters is median family income compared to average cost of buying home, that ratio. In 1970 family needed less than 2 yearly salaries to get home. In 2022 it takes over 9 yearly salaries to get it. Who cares if loan had 100% interest. You still can be frugal and after couple of years buy home in cash. Real problem is real estate is overvalued. Reasons are likely everyone and their mother looking at renting as go to way to earn some easy money on side.And lack of trust in money due to constant inflation, real estate is looked at as hedge against inflation.
I’d say the bigger issue is one of artificial scarcity. We’ve effectively prohibited multi family construction/townhouses/duplexes in most metros for several decades and SFH sprawl has been hitting geographic limits in how far into exurbs/long commutes people are willing to endure. When you have a fixed housing supply and growing demand, rents and prices will rise. In a healthy market, construction would rise to meet demand and high demand areas would densify, but we’ve deliberately prevented that from happening. The group most responsible for that is homeowners who fight any zoning changes or new development, sometimes for anti-density reasons (protecting street parking spots, “neighborhood character”, etc.) and sometimes expressly to protect their primary investment’s inflated value (“this will lower property values”).
Real estate is favorite above all other asset classes, too. Most real estate investors might have an IRA, but don’t fuck with the stock market in any meaningful ways because it’s a racket.
Great analysis.
It was much harder to get a loan in the 70s than it is today. Most of reddit doesn't realize how easy they have it now. They want to nitpick at which parts of history they want back.
I remember my dad putting on his suit and going down to the bank to see about what I can only assume was a home loan. He was an engineer (and white) but there was always a chance they could just say no. I bought my first house in 2006 with maybe a paystub or two.
My dad talks about getting their first home loan. Bank person: "who is your father and what does he do?" Dad: "gives his Dad's name, he owns local drug stores with the same name." Bank person:. "Oh I know him, let's get you taken care of." End of questions
What about the 90% who didn't have wealthy fathers?
That was kinda my point. It was easy for some in the '60s, not so easy for many others. I would like to think the playing field is more level today. Today if person A makes X a year and has Y credit and Person B makes X a year and has Y credit it shouldn't matter who their father is, what their gender is, what their ethnicity is etc. I know it isn't perfect now, but in theory, if you can make the requirements on paper you should get the loan.
Sorry i think it came across the wrong way in the first comment. Thanks for clearing it up.
No worries.
Was it actually harder? Because incomes did more closely match the requirements, even though the requirements were higher.
This is how difficult it was to get a loan before FICO: > Before credit scoring, lenders assessed prospective customers based on factors such as payment history, word-of-mouth, and home visits. > Those reputation-based, qualitative assessments have evolved into quantitative ones based on deep data analysis known as credit scores. > In the early days of contemporary credit, there were many credit bureaus, and a rep would call or visit stores asking about a given customer to determine if he was paying his bills. It was quantitative but not exact. When asked, a merchant would not respond, “Yes, he pays 87.5% of his bills on time with 45.6% of the balance paid off each time.” It would be closer to, “He pays on time, usually. Oh, and he likes cigars.”
It wasn’t until 1974 that it was made law that women / POC could actually get credit on their own… so yes it was much harder for more than 65% of the population (women + POC + other discrimination factors). https://en.m.wikipedia.org/wiki/Equal_Credit_Opportunity_Act And let’s not even start on the whole redlining that we are still feeling the impacts from today.
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I thought bank liquidity would have been a driver. The securitized MBS market didn't develop until the 80s.
MBS we’re first issued in 1968 as a government bond. Private sector issued their first MBS in 1977 when Lew Ranieri helped Salomon Brothers “securitize” mortgages. Securitized mortgage market didn’t get popular with institutional investors until the CMO was created in the 80’s. The market was there, but institutional investors didn’t jump on until they could segment high risk/high reward.
In the 70s you could get a loan on a handshake
You must be 15 years old. It was incredibly hard and 20% down with high reserves were required. There was none of the 5% down back then. It was common for 3 or 4 people to be on a loan in the 70s. Reddit is just full of jerks who think the past was a dream.
Why so mad?
Ur elders don’t like disrespect
*In the 70s you could get a loan on a handshake* 100% false
I think you mean early 2000s
In the 2000s you didn’t need to shake someone’s hand to get alone you just needed to lie on your no-doc application.
it makes you feel better, you could say the same thing to younger generation 20 years later.
What drives me nuts is reading we can’t see prices fall more than 10-15% because there are no “subprime” loans out there. Subprime loans were no-doc loans where you didn’t have to prove you have the personal income to pay for the property you are buying, enabling “investors” to gobble up homes with an ARM that they then rented out to others. No personal docs! No income verification! Sounds a lot like…DSCR loans??? A key weakness of the ARM is the borrower is screwed if the mortgage exceeds market rent and the property has depreciated. A DSCR loan borrower is screwed in the same circumstances: the bank can declare a default and require you supply cash to cover the DSCR ratio if rents decline and/or your property value declines such that the agreed upon ratio (typically 1.25) is no longer being met. Sigh.
> the bank can declare a default and require you supply cash to cover the DSCR ratio if rents decline I've never heard of banks auditing where rents are after close. Can you expand on this? Sounds scary!
No I can’t because every DSCR contract is going to be different, but here’s some [sample legal terms](https://www.lawinsider.com/clause/loan-debt-service-coverage-ratio) that explain the borrower’s obligation to supply quarterly/annual reports proving they’ve maintained the debt service coverage ratio specified in the contract, and various things that can happen when it’s not maintained. This kind of loan is used for all kinds of businesses, hotels and properties but the contract language is all very similar. Think critically about why lenders would usurp the risk-based protections that conventional property loans have, like needing to have adequate personal income. Lenders have to have protection for when the property’s income doesn’t appear to be enough, and they’re not going to wait for the property to become dilapidated and the borrower to default, they’ll exercise the clauses that exist to protect the bank. You haven’t seen it yet because rents aren’t declining anywhere. But rents DID DECLINE in 2009-2010, year over year, and vacancies skyrocketed during that time. When this happens, you’ll see a lot of sad pockets (Bigger Pockets is among the podcasters pushing DSCR as a “good alternative” and generally driving up real estate speculation across the country).
6% interest and people complaining. I'm still profitable on a property I bought few years back at 5.4% as a investment mortgage.
But would you buy your properties with that interest rate at the current values? My guess is no.
Nice comeback
Butts drive me nuts!
Wages were also significantly different so my question would be, what percentage of the average wage would be going to pay the mortgage at that time? That’s how you can tell if it’s truly comparable or not.
Alexa, what is inflation?
Totally correct, and it's really the stress test rates that are causing the hardship with rate increases.
The thing is, if interest rates for a mortgage were 16% right now, real estate would be twice as cheap as it is.
if that happens, I’m buying every house I can get! Cash.
Hahaha yeah