The mortgage isn't the only cost. Interest is tax deductible. If you make decent money, you're better off with higher interest, lower house prices, lower insurance prices, and lower property tax. Let's not forget that debt does need to be repaid. Interest rates will likely never normalize, but anyone taking out 4-5x their income in debt, should at least be a little worried if they do...
Take Dallas Texas as an example. It wasn't affected very much by the 2008 bubble (probably because of high property taxes). The median price in 2000 was ~$100k and is now ~$240k [1]
Interest rates in 2000 were 8% [2]. They're currently 2.94%.
WOW! House prices are cheaper today! Not really. Let's take taxes into account.
Property taxes:
=240000 * 0.0208/12 # TODAY
$416
=100000 * 1.025^20 * 0.0208/12 # 2000
$284
Insurance is about $30 a month more today. And since the mortgage interest today is less than the $12k standard deduction, it probably won't get any tax benefit today. In 2000, it'd be about $100 a month.
But then there's the opportunity cost, too. Today your down payment is ~50% larger. The opportunity cost is about $100 more per month.
$1,004 + $416 + $30 + $100 = $1550 # TODAY
$1,202 + $284 - $100 = $1386 # 2000
It's only a ~12% difference. If you're in a more pricier market, the tax deduction was much juicier. Real monthly payments are ~50%+ more expensive. If you're an investor, cap rates are trash. Plus you're taking out debt to income that at any other point in history would seem insane.
The monthly payments aren't the big issue. The real trick is that by lowering interest rates from ~8% to ~3%, the Fed created $14T in real estate wealth out of thin air. That's where most of the inequality really stems from. For most people, their house represents the majority of their life's savings. If you're older and own a home, the Fed doubled your wealth. If you're younger and don't own a home, the Fed make increased your housing price by 5-20%, devalued whatever savings you had, and forced you to take on extreme levels of debt for a similar monthly payment on a house (which you probably don't have, because in real terms you need a ~50% bigger down payment).
Take Dallas Texas as an example. It wasn't affected very much by the 2008 bubble (probably because of high property taxes). The median price in 2000 was ~$100k and is now ~$240k [1]
Interest rates in 2000 were 8% [2]. They're currently 2.94%.
=PMT(0.0294/12, 30 * 12, -240000) # TODAY
$1,004.10
=PMT(0.08/12, 30 * 12, -100000 * 1.025^20) # 2000 with 2.5% inflation
$1,202.36
WOW! House prices are cheaper today! Not really. Let's take taxes into account.
Property taxes:
=240000 * 0.0208/12 # TODAY
$416
=100000 * 1.025^20 * 0.0208/12 # 2000
$284
Insurance is about $30 a month more today. And since the mortgage interest today is less than the $12k standard deduction, it probably won't get any tax benefit today. In 2000, it'd be about $100 a month.
But then there's the opportunity cost, too. Today your down payment is ~50% larger. The opportunity cost is about $100 more per month.
$1,004 + $416 + $30 + $100 = $1550 # TODAY
$1,202 + $284 - $100 = $1386 # 2000
It's only a ~12% difference. If you're in a more pricier market, the tax deduction was much juicier. Real monthly payments are ~50%+ more expensive. If you're an investor, cap rates are trash. Plus you're taking out debt to income that at any other point in history would seem insane.
The monthly payments aren't the big issue. The real trick is that by lowering interest rates from ~8% to ~3%, the Fed created $14T in real estate wealth out of thin air. That's where most of the inequality really stems from. For most people, their house represents the majority of their life's savings. If you're older and own a home, the Fed doubled your wealth. If you're younger and don't own a home, the Fed make increased your housing price by 5-20%, devalued whatever savings you had, and forced you to take on extreme levels of debt for a similar monthly payment on a house (which you probably don't have, because in real terms you need a ~50% bigger down payment).
[1] https://fred.stlouisfed.org/series/DAXRNSA
[2] http://www.freddiemac.com/pmms/pmms30.html