patrick.net

Adjusted for inflation only worth $225-250K.

Paying $700K was just insane... paying $500K is equally nuts.

$250K @ 4.25% works out to an average housing expense of $800/mo over the next 30 years.

$500K works out to $1500/mo. Doesn't seem out of line. Rents in 30 years will be, what, $6000/mo?

thomas.wong1986 says

Adjusted for inflation only worth $225-250K.

Well by that logic then a 1995 Toyota Camry should sell for $50,000 not $1,800

Troy says

$500K works out to $1500/mo. Doesn’t seem out of line. Rents in 30 years will be, what, $6000/mo?

Perhaps DT will turn in to Melrose Ave for the cool and hip...
But I doubt it ...

Tenouncetrout says

Well by that logic then a 1995 Toyota Camry should sell for $50,000 not $1,800

A properly maintained house lasts forever, at least until an Act of God wipes it out.

And much of the purchase price of a home is actually the land component -- the site value -- which generally does not depreciate at all, though this certainly can should an area's safety, commute to jobs, or other worsening factors impact the assortment of locational advantages that go into site value.

1B Rents in West LA were $700/mo in 1991, now they are ~$1350/mo. This is 1.6X the inflation of CPI alone.

Housing is not a 1995 Camry. If you don't possess a Camry there are millions of other transportation options, and one does not even actually need a car in most areas.

One does, however, need a place to live on this planet, and more specifically in some community, and the supply of living space in any given area is lot more fixed, compared to the used car market.

Since the supply of housing is so fixed, as our incomes inflate ever upwards, proportionally more of our take-home pay is sucked out in rents (and mortgages, as people buy instead of rent).

Houses are not cars.

thomas.wong1986 says

Perhaps DT will turn in to Melrose Ave for the cool and hip…

$6000/mo sounds like a lot now, but my parents were paying $400/mo 30 years ago, about 1/3 what rents are now. Another 3X inflation by 2040 would not surprise me, not in the least.

Troy says

$6000/mo sounds like a lot now, but my parents were paying $400/mo 30 years ago, about 1/3 what rents are now. Another 3X inflation by 2040 would not surprise me, not in the least.

Certainly the case in the last half of the 20th century, but TODAY and going forward other factors such as globalization will depress prices/rents.

House prices rise with wages. Today, prices of houses in many parts of the USA will fall because 1. there are 2 million 90 days behind mortgage payment 2. there are 7 million 30 days behind. ETC.
Interest rates are essentially zero to banks and this must eventually change, which means prices of houses will fall some more.
So, say houses go down another 30% in some locales.
How fast will wages rise to make the prices of houses begin to climb back up?
The last post explains how globalization and offshoring will depress wage growth, as the millions of illegal aliens (no education) do already.
Without wages rising much, house prices cannot rise very much either.
The good old days are gone. My father's 15 room house on 3/4 acre in NYC cost him $125/month mortgage way back when. Now he spends that on his cable tv probably.

clambo says

My father’s 15 room house on 3/4 acre in NYC cost him $125/month mortgage way back when. Now he spends that on his cable tv probably.

What was the minimum wage back then? Yes, house prices have gone higher than inflation rates, but using the "In my day things were cheaper" argument is complete B.S.

Troy says

thomas.wong1986 says

Perhaps DT will turn in to Melrose Ave for the cool and hip…

$6000/mo sounds like a lot now, but my parents were paying $400/mo 30 years ago, about 1/3 what rents are now. Another 3X inflation by 2040 would not surprise me, not in the least.
“Nessuna soluzione . . . nessun problema!„

they have also gone through the inflation when wages kept on rising. Something we aren't going to experience in the economy where our wages have to compete with Chinese/Indian and other countries with low wages.

Troy says

1B Rents in West LA were $700/mo in 1991, now they are ~$1350/mo. This is 1.6X the inflation of CPI alone.

It's actually more like 1.4X CPI (65.9% from 1991 to 2011), although I'm not convinced that your figures are right. I'm fairly certain friends of mine rented a 1BR place in West LA for $1100-1150 about 6 months ago. I doubt it's gone up more than $200 since then. I believe they also got 1 month free, so really it's 11/12 of that in effective rent.