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Real Estate
Reply to "Salary vs House Cost"
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[quote=Anonymous][quote]If the home cost should be no more than 3x the salary, then, doesn't the home prices seem out of whack with the current salaries?[/quote] Let me put that another way. Historically, a normal RE market reflects this ratio. Sometimes, it is well below that (depressed) and sometimes well above that (overheated). RE markets tend to find equilibrium at about the 3x income ratio. Remember, interest rates are being held down, deliberately, by a central bank (the Fed) that is buying massive amounts of bonds (most of them likely never to be repayed) with taxpayer (our) money. It is not sustainable and will not be sustained. Interest rates will rise, perhaps drastically, and we'll get back to 3x earnings eventually, probably below that, before the cycle starts again. If you borrow five times income at 3.5% to for your house, the buyer who comes after you, with your income level, can only borrow half of what you did should rates go to 7% and still "afford" the payments. And 7% is still below the historical rate for 30 year fixed paper. So think about who you will eventually sell to before jumping in.[/quote]
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