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nfinf  26d ago (nfinf.substack.com)   1629 thread views

How good the boomers had it

nfinf.substack.com

Inspired by some of the conversations we had here about the experiences of previous generations (especially with /u/the_nybbler, and yes, I know you're not a boomer), I wrote up a post that challenges a common narrative of how good the boomers had, and how screwed the millennials are. Main point is that the houses were not that much cheaper relative to now, and the interests rates were murderous. Enjoy!

(I'm a regular poster here, but I wanted to separate the identities for opsec purposes).

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Main point is that the houses were not that much cheaper relative to now, and the interests rates were murderous. Enjoy!

This is much closer to boomer average, and in fact, is more than what some boomers had to pay.

Think about it: so much griping for measly $200/month difference. But hey, maybe the millennials are so whiny because of no wage growth, so this actually means a lot to them? Let’s look into that.

You are missing something big: as soon as interest rates dropped, boomers could refinance to a lower rate. So that high interest rate was not paid during the entire 30 years of the mortgage. Someone really needs to do the boomer versus millennial home-payment comparison taking refinancing into account. When a millennial is buying the home at rock bottom interests but still having the same payment as a boomer paying a 12% interest rate, the millennial has no prospect of further reducing the payment in a future refinancing.

I wish I could still ask my parents this question. Because they bought a home in 1984, a year after I was born, for $124,000. Guessing off data, their mortgage would have been 13-14%. When I adjusted for inflation, their mortgage was nearly double mine in 2023 dollars. I bought a house for about $500,000 at a <3% interest. And that explains a lot of the hardship my family of 5 had growing up. Constant fights about money. Second mortgages to pay for necessary repairs. Praying the well pump or the water heater would make another season. It wasn't until the 90's that they finally refinanced, and then my teenage years felt like we were on easy street. Went from eating terrible, gristly cuts of steak strictly twice a year, to going out to eat at steak restaurants twice a month.

I'm not sure what delayed refinancing so long. I don't know if my parents simply never thought about it. I don't know if all the debt they had gotten themselves into kept them from qualifying. It's a total mystery to me, and I have no way to ask them.

Regardless, the "bad mortgage" was a boomer trope for ages. It reared it's ugly head in many 90's sitcoms. The Simpsons, Married with Children and Roseanne are all implied to be trapped in "bad mortgages" or otherwise house poor. And I remember in The Simpsons with the Flanders and Married with Children with the Darcys, they wind up with neighbors who bought later than them right next door and seem to be far better off, presumably with lower interest rates.

For years and years, the "bad mortgage" seemed like a bit of forgotten history. I knew a single poor schlub with an ARM or something who's mortgage doubled on him sometime around 2015 or so? Feels like he walked into that one. Only recently with 7-8% rates and prices virtually unchanged am I seeing people really groan under the weight of mortgages that eat up 50% of their income again. And if my childhood was any indicator, all this has happened before, and all this will happen again.

While that's true, they still had to be able to afford the original mortgage payment. The complaint of millennials is that they can't afford to buy a house now, not that they can technically afford to buy it now but that it's unsustainable to own it more than a few years unless they can reduce their payments. Wile some boomers certainly benefited from interest rates going down, it isn't an assumption you can make at the time of purchase. It should also be noted that this was also a time when lenders expected you to have 20–30% of the purchase price in cash at closing for a down payment. It seems like down payments now are basically a formality. I mean, you need them, but when I suggested paying the traditional 20% for my house the general opinion was "nobody pays 20% anymore".

What about real interest rates back then? Low value mortgage was deflated away compared to 70s/80s nominal income growth of like 15% each year. Sacrifice for a few years, yes, then debt payment becomes increasingly trivial compared to rising income, which isn't true now.

That's a very good point, and you could use it to argue that boomers actually ended up well off as they aged, and the prospects of millennials are not so bright. This is most likely true: barring some AI singularity revolution, by the time millennials retire, they'll be pretty screwed relative to today's boomers.

That said, typically complaints about housing affordability come from people who want to buy or upgrade, not people who have been making payments for 5+ years.

The millennials are the children of the boomers, they are going to inherit those expensive houses that the boomers are living in. Some people think that they will end up being the wealthiest generation who have ever lived.

But yes, I'm sure that millennial pension schemes will be drastically less generous than their parents get now, due to ageing populations and the fact that those pensions were never sustainable to begin with.

Main point is that the houses were not that much cheaper relative to now, and the interests rates were murderous. Enjoy!

I agree 100% with this. Shameless link plug: The Myth of Wealthy Boomers (why they are not much ‘better off’ compared to later generations)

The boomers were not as exceptionally lucky or fortuitous as commonly assumed. Like any generation, there is a lot of variance or variability in terms of SES, as we're talking large populations of people . Despite having 50+ years of post-war prosperity and a supposed head start, still, many boomers live in poverty or don't have enough for retirement.

True, homes were a lot cheaper in the '80s and '70s, but interest rates were much higher, mortgages more expensive and shorter duration, and much lower inflation-adjusted salaries. No 6-figure white collar jobs for boomers back then. Adjusted for inflation, a competitive boomer job may have paid the equivalent of of 60-80k today, not $300k + comp.

Moreover, home ownership rates are unchanged over the past 60 years, at around 60-65%.

don't have enough for retirement.

I'm sure that there are some deserving poor Boomers, but it's notable that the savings rate fell as they earned more of national income:

https://fred.stlouisfed.org/series/PSAVERT

Cutting saving rates by > 50% on average doesn't seem like a good retirement strategy, except insofar as you know that welfare (Social Security, Medicare etc.) will come to the rescue.

I don't know if Boomers in particular were saving less, though.

Moreover, home ownership rates are unchanged over the past 60 years, at around 60-65%.

Just a side-note, homeownership rates aren't very meaningful for affordability. If the government introduces a new 100% tax on all new cars (it goes towards kicking puppies and parking studies), the calculation to decide between leasing (at 2x the rate) vs buying with a loan (at 2x the price) is essentially the same for car-users as before, the 2s cancel. That does not tell you anything about the harm/fairness/cost of that tax.

I appreciate that you did the research that somewhat proves what I have hypothesized about the housing market in general - as the cost of money decreases, prices of goods increase. House supply is relatively constrained and are unable to meet demand. This goes both ways - people leaving the area causes price shock as less and less people are in the area, usually houses aren't destroyed when someone moves out. Goes the same in reverse, it can take a year or more to build a house and longer for an apartment building so if there is a sudden influx of people, there are more people trying to buy the same basket of goods and prices increase.

Very interesting. I wonder if a lot of the griping (in the US at least) is also influenced by the state the griper lives in. My understanding is that some states (e.g. California) have overly restrictive planning laws that push up house prices, while others (e.g. Texas) have more liberal laws that allow more housebuilding.

Low Texan house prices bring down the national average, while high Californian house prices still price out millennials who want to stay in their home state.

Google says the average house is Texas costs around $300,000 while the average house in California costs $765,000, which seems to bear this out.

If there was ever a place which would have a distorted average house price, it’d be California.

As MAM says, Texas’s tax regime makes things a little weird. We don’t do state income tax, but property taxes are higher.

Sprawl is also easier here due to flat terrain. An hour on I-35 will get you further out than that hour on the 405. We have a lower risk of natural disasters. So there are other factors which make building easier.

The housing prices are due to many more factors including higher Texas property taxes (as a percentage) and more desirable climate in California. So there are factors going both ways.

As for the substance, I appreciate what you’ve done with the FRED data. A couple questions came to mind.

  1. Given that many of the Boomers were born by the early 50s, how many of them really faced insane 80s interest rates? I’d really like to see payment by year, even before we have income data.
  2. Could appreciation feel more important than affordability? I don’t think it’s a stretch to say homeownership looks a lot more appealing when you haven’t just watched your parents’ assets implode.
  3. How would adding the cost of children possibly help? Even if you ignore the additional costs of (college!) education. Two-income trap aside, there is no way that having a child at 22 gets you more net income than having no child.
  4. What about subgroups? If you could separate out urban sales from suburban or rural ones, would you still see that affordability remain flat? Even beyond the metro areas, I suspect the growth in incomes is not happening in the same places as the growth in prices. Especially not with the shift away from heavy industry. In 1980 that median $16,500 might have been earned by a machinist outside Pittsburgh. Today, the median income isn’t going to a machinist, and it sure as hell doesn’t end up in the Rust Belt. Is this enough to cover up reduced affordability?

I think you’re making a mistake by dismissing complaints stemming from metro areas. Far more than half the country counts as “urban.” Effects on the major cities aren’t just hitting affiliates of the NYT, but the accountants, the waitstaff, the teachers, and whatever factories we have left. And the stability of medians can conceal a whole lot of distortion. Is it really reassuring if only 40% of the country has it worse than the Boomers?

Imagine Jeff Bezos sets his resources to scouring the housing markets. Any listing within 10% of the national median, he snaps up. He grabs as many as he can before the demand shock kicks in. Then he sits on them. Would-be buyers of these median homes are left looking at a gap. Even if the median price didn’t change, the intersection of “affordable” and “worthwhile” is now empty. It can’t be trivially filled, either, since new development takes time and more money.

That was a dumb example, but I think you’re missing something like it. Median payment over median income doesn’t tell the whole story. There’s got to be a reason why millennial habits are so different, and I’m not inclined to blame moral fiber.

Given that many of the Boomers were born by the early 50s, how many of them really faced insane 80s interest rates?

If you were born in 1950, earliest you could practically consider buying a house is when you're 22-23, and by then the interest rates are already around 7%. The oldest boomers, born in 1945-49, saw rates around 6%, which starts being reasonable, but then again, "a small group of people born within 5 years interval lucked out into good economy" is not exactly a strong, well fortified position on the frontlines of generational warfare.

Could appreciation feel more important than affordability? I don’t think it’s a stretch to say homeownership looks a lot more appealing when you haven’t just watched your parents’ assets implode.

I'm not sure what you mean by this, can you elaborate? Do you refer to housing bubble collapse in the aftermath of GFC?

How would adding the cost of children possibly help? Even if you ignore the additional costs of (college!) education. Two-income trap aside, there is no way that having a child at 22 gets you more net income than having no child.

Boomers also had kids, had more of them, and at younger ages too. My thinking is that what matters is not your raw net income, but your willingness to commit to homeownership. Once you have kids, you'll be strongly motivated to spend on improving your housing situation, instead of getting a nice new car, going on nice vacation, or hanging out in bars buying heavily marked up booze.

If you could separate out urban sales from suburban or rural ones, would you still see that affordability remain flat?

I don't have easily available data to answer that, but I'm very interested in this question.

Even beyond the metro areas, I suspect the growth in incomes is not happening in the same places as the growth in prices.

But does it really matter? This is why I focus on medians, to completely elide this problem. If half of the homes are affordable to half of the people, what kind of geographic distribution of incomes vs houses would make the practice mismatch the theory so much?

I think you’re making a mistake by dismissing complaints stemming from metro areas. Far more than half the country counts as “urban.”

You're missing the point of taking medians. I do not dismiss urban areas as such (I never even use the word "urban" in my post). I dismiss a handful of very attractive metros, arguing that relatively few people live in those, so even if millennials living there are indeed screwed, they do not represent the experience of a typical millennial.

I think the bigger factor is that due to increased visibility and brand awareness, more millennials want to live in NYC or SFBA or similar, which on the one hand bids the prices there up even more, and on the other contributes to the feeling of unaffordability. If you grow up in Buffalo, NY, and you want to move out, you ask yourself: where? "To NYC" is an entirely obvious answer. Then you look up how much it costs to live there, and despair, but you find a job that allows you to barely make ends meet, staying with some roommates, and hoping for promotion. Of course, you'd be better off if you moved to place like Atlanta or San Antonio, but these places don't have NYC's brand.

Imagine Jeff Bezos sets his resources to scouring the housing markets. (...)

Again, I think you need to come up with a better, more realistic model for this argument to make sense. In this example, Bezos creates artificial gap around the median, so what's left on the market is small cheap houses (e.g. 1bed condos), and expensive unaffordable mansions. In that scenario, yeah, people would be correct that they cannot afford a starter home that's viable to raise a family in. Is this what's actually happening? I am quite certain that the answer is "no".

As an interesting aside, Jeff Bezos is much too poor to affect the housing market significantly. There's something like $500M worth of single family houses just within a mile of where I live. He'd very quickly run out of cash if he started to seriously buy up housing.

I'm wondering what percentage of Boomers had bought before the rates passed, say, 10%. The last year below that was 1978.

Raw birth numbers for the Boomers are here. By my count, then, about 31M Boomers had turned 25 by 1978. That's on par with the number who'd reach that age between '79 and '85. Something like half of the Boomers would have been buying their first houses at 7 to 10%, not 12 to 15%! More if they were actually making the purchase younger. I could see that making a big difference in the generation's wealth.

GFC

Yeah, I was thinking the volatility of the post-2008 period might have disincentivized new buyers. It certainly changed the way house speculation was managed. But I'm not really attached to the idea.

instead of getting a nice new car, going on nice vacation, or hanging out in bars buying heavily marked up booze.

This is where I'd like to see you include more data, because it feels like you're falling back on the stereotype. There's a tidy narrative where those rootless millennials lack discipline, but I'm not sure it holds up. Not compared to the effects of credential inflation, of the transition to a service economy, or these housing statistics. Are spending habits really more impactful than what might be a 20% increase in house payments?

"urban"

My bad. I was trying to refer to urbanization rather than just true urban centers. The suburban metroplexes are more important than ever, and I don't know what fraction of them are reporting things like your New York examples.

medians

No, I appreciate why you used the median. It's certainly more stable than the mean for what you're trying to show. But it doesn't solve the subgroup problem, because in theory, up to 50% of your population could be experiencing something very different. There's no way that happens in a vacuum, of course, but how big of a percentage is doing the complaining? More than half of the country is urbanized, so a lot of people have opportunities to witness the metro effects on housing. Even if they don't suffer from it personally, that's liable to shape a narrative.

You make a good point about the averages, but one salient thing you leave out is that the price gains on housing in the most productive part of the country has far outstripped the income growth there. If you're a (younger) millennial who wants to move to a productive area you have probably missed the boat - 2018 was still a decent time to buy in these areas (especially with the phenomenal interest rates) but the tail end of the millennials had just graduated college around then. It seems... counterproductive for the most productive parts of the country to have the most unaffordable housing.

I do talk about it a little, in the "Perceptions" section:

Metro concentration: we focused on medians here, but a lot of griping online comes from the extremely-online group which happens to live at high rates in a bunch of very attractive metro areas, like NYC, SFBA, or DC. In these metros, the housing prices did indeed skyrocket, and it is much less affordable than those same places were to boomers.

The benefit of focusing on medians is that it allows you to say that relatively few people actually live in those metros (compared to the entire country), so while this is huge problem for a very loud, but small group, it's not the experience of a typical millennial.

It seems... counterproductive for the most productive parts of the country to have the most unaffordable housing.

Fully agreed.

Interesting analysis! Brings up some counterpoints to the usual narrative.

From my own friend group the whiniest of my millennial circle who disparage the boomers the most also seem to be the worst with money. They persist in lower paying jobs and havent tried changing careers as readily as they perhaps should, or sometimes aren't even investing for retirement (instead of the oft-blamed avocado toast what is the opportunity cost of habitual marijuana consumption?).

With the recent stock market rallies its easy to see the gaping maw of future millennial wealth inequality.

Approving this with the caveat that CW discussion should stay in the CW thread. I think you’ve steered clear enough of the “generational warfare” angle to allow the post out here.

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