What if Everyone Paid Cash for Their Houses?

Jun 12, 2023 | Finconomics 101, No Bull Economics

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Way back in the day, some used a rule of thumb that the cost of your house should approximate 2.5x your annual income. Also, it wasn’t unusual for new homeowners to make 50% downpayments & to eventually throw mortgage note-burning parties after paying off their residences… 

Commentary

  • Should we value homes like we value stocks with prices reflecting some multiple of earnings?
  • Seems reasonable that there should be some guardrails other than purely considering mortgage payments as a % of disposable income.
  • Notably, the current $517k median home price represents nearly 6.5x the median household income.
  • If society returned to a 2.5x multiple, this would imply that the median house sale price would decline -66% to $177k!
Home Prices and Income Graph
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