I make considerably more than my parents combined when they bought our last family house in 1989. That house is now about twice what I can afford and about 600% what they paid for it. Having doubled in just the past few years.
It’s ridiculous.
My wife and I bought a house in rural Ontario. It appreciated by 25% in two years.
It’s ridiculous.
I don’t want property to be an investment asset. I want it to be a tool, as close to at-cost as reasonably possible. I want everyone to have secure homes. And not just by eternally paying rent.
Obviously there are other factors in play as well -- income inequality, printing more dollars, international & corporate investment -- but low interest rates are likely the biggest influence, and the longer they stay artificially low, the more people assume they will never rise again.
Rates don't have much of an impact on affordability. If rates drop dramatically, then home prices rise in near lock-step, all those looser dollars flowing right back into the housing market. It means that with the same monthly payment, you're able to afford more (and people seem to shop based on what monthly payment they can afford, and are encouraged to do so by everyone from realtors to bankers). The inverse is true, too, with prices falling as rates increase (gee, remember way back in the day when that used to happen? 2018 was wild!).
The OP stated price of the house was 6x, I'm pointing out the contrast in rates is the biggest driver of the change.
Second, you're simply wrong. Yes, of course prices rise when rates drop (that was my original point), but not proportionately, and it absolutely does affect affordability. People flood the market when rates start to drop because they THINK that it's a great deal, and that pumps prices beyond what is proportional. It happened in 2004-7, it happened in 2013-19 (then shit got crazy for even more reasons). Further, the down payment required for an $800k house is a whole lot more than when that same house was $350k -- and people could build that down payment by earning 6, 7, 8% in a savings account. To top it off, the guy buying at 10% rates is likely going to be able to refinance at 7, or 5 or even less at some point during the 30 year life of the mortgage. What is the impact of refi when you start with a 2.75% mortgage? Higher RE prices also raise associated costs -- the transaction costs, RE taxes, overall debt ratios, etc.
Presumably that house isn’t the same house it was back in 1989.
My uncle saw the same change (about 10x increase over 30 years) but his house went from “in the boonies next to farm land” to “desirable suburb of major city”. It was literally a town of 15,000 and is now a part of the greater metro area of 5M.
Same with my grandparents. Their house was on the edge of the city when they bought it and now it’s regarded as a “central neighborhood”.
This is an excellent point. The services in close proximity to most houses has increased dramatically. Recently I read a comment lamenting how "boomers" bought up all the beachfront property and there was none left. This commenter never understood that in this particular community, the beachfront wasn't even connected to the mainland by any roads at the time, the people who lived there were more or less exiled because it was the cheapest area to live due to it having zero amenities at the time. Sure, once the city built the bridges things got a lot better, but in some cases it was 20 years before that happened.
It’s ridiculous.
My wife and I bought a house in rural Ontario. It appreciated by 25% in two years.
It’s ridiculous.
I don’t want property to be an investment asset. I want it to be a tool, as close to at-cost as reasonably possible. I want everyone to have secure homes. And not just by eternally paying rent.