Re: 'How can we reconcile the phenomenon of home price inflation with the obvious stagnation to decline in incomes?'
Some of it actually makes a great deal of sense.
If you borrow 300,000 at 4.5% (the low of recent 30 year rates) you pay $1,520 per month for 30 years - $547,200.
If you borrow it at the 9% rates prevelant a few years earlier, you pay $2,414 per month - $869,040.
The reverse, is that when rates were at 9%, your $1,520 "bought" you about $189,000 in a loan, while, when rates were lowest, that same income and payment covered a $300,000 loan.
The initial drivers of the big increase in what buyers were willing to pay for homes was the very real drop in the cost of money. |
