Eli5: why are interest rates now considered worse than higher interest rates of decades ago?


I am surrounded by boomers saying this that in their day interest rates were at 15% and we have it easy! I’m also surrounded by the younger generations saying this is ‘not the same thing’

Explain to me the reasoning…

In: 233

7% interest rates when home prices are 3x average annual salary: not a huge deal
7% interest rates when home prices are 15x average annual salary: huge financial burden on the buyer

Interest rates are just one part of expenses.

They’re essentially saying even though you’ve been getting a pay cut for the past 40 years and we’ve been steadily increasing prices, and we are now making you pay for more things without any help (health insurance, retirement, etc) – you should be grateful.

If you’re asking for Boomer reasoning, I suspect they aren’t adjusting for inflation and cost of living.

The interest rate in 1981 was about 17%. The median home price was $60k. Inflation adjusted, that’s equivalent to $227k today.

Fast forward to 2023. The median home price today is $410k.

17% on $60k v 7% on $410k. Anyone with a pulse should see why they’re not comparable.

Saving accounts were also giving more than fractions of a percent back then. They ruined it all for us.

The *interest rates* are not worse than the rates of decades ago.

The *effects* of the current rates on an average homebuyer are worse than the rates of decades ago.

This is because the value of a property relative to someone’s average wealth is much, much higher than it was back then.