Extending the mortgage term only drops the payments so much - at some point, it's just an interest-only loan, for all practical purposes.
I also don't see people spending their entire income, over generations, just on housing. There is a hard cap on what 95+% of the housing in the US can ever cost, and that's tied to wages. We might not have hit that limit, but it's there somewhere.
As a thought experiment, if a house in any random city/town in the US costs 100x your annual wages in 20 years, why wouldn't you just buy some land (there's a LOT of it) and build a new house for 2% of that amount? Lots of people would just relocate to empty land and create new towns from scratch if the economic incentive was that great. House construction isn't particularly more expensive today in real terms than it was 20 years ago (though some codes are stricter, like for hardwired smokes and such).
NY penthouse condos for billionaires is a different story, obviously, but even there - if the prices continued up exponentially forever, even those folks couldn't afford them anymore. Exponential growth is crazy. At some point housing becomes basically the entire economy if it grows lots faster than GDP as it has for a while now.
-W
But interest only mortgages are quite a thing in some parts of the world and the vast majority of people getting them have no idea what they mean.
I can't tell you the number of times I've heard "buying is sooo much cheaper than renting" in Sweden. Because yeah, pretty much no matter what you buy with an interest only mortgage when gross interest is 1,2%, your monthly payment is going to be (way) less than renting a similar thing.
I'd guess that 80% of buyers don't even understand the logic behind their purchases.
Often on mom's groups I see people asking stuff like "does the bank give us our deposit back when we sell?" and other people answering "yes, of course". To them buying a place is you give bank some money, they give you a place, you pay some little money every month, ten years later you sell with a huge profit, boom, you're the genius, renters are morons. And this has worked for decades now and it's not going anywhere. The only thing threatening it is that really, the interest rate only has a little bit more to go before it's negative (however, we've already seen that too in Denmark so...) (
https://www.cnbc.com/2019/08/12/danish-bank-is-offering-10-year-mortgages-with-negative-interest-rates.html)
A guy I know recently bought a 2 bedroom apartment in Stockholm for 900 000$. He and his wife are high earners, which in Sweden means they take home about 7000$. This really puts them high up there, most households can't get their hands on that kind of cash monthly. Yet 900k for an apartment is the going rate in the fancy areas where self respecting high earners absolutely have to live.
What I'm saying is that there are very different notions of normal behaviour around real estate around the world, which of course doesn't mean any of it is likely to apply to the US, but it does kind of expand the scope of possibilities of what "has" to happen when it all gets out of hand.
My bet is now on the "weird shit happens to let people continue buying" side and not on the "prices will drop significantly and markets will normalize"...sadly, because I feel the prices where I am are already too high for me to feel comfortable stepping up my involvement in this market to buy something that can house all of my kids.
