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
15% interest rate on a 40k starter home is about 6000 a year in interest.
5% interest on a 500k starter home is 25000 a year
And remember the home that was 40k was likely much larger with a yard and all that stuff vs the 500k one now that likely is a semidetached cookie cutter house with very little hard, a comparable house now isn’t considered a starter home and is likely more about 800k or about 40k interest a year.
So let’s remember those 3 numbers , let’s say the person back then is making 10 an hour or 20,800 gross a year or atleast 15k take home , assuming they pay 1500 on the principal each year that means the mortgage will be 7500 a year leaving 625 a month to live off of which was more then enough for a family of 4 to survive on. Now remember every year if they drop 1k off the principal they also save 150 in interest as well.
So now let’s see our modern people and just to knock off 1/30th of the principal in the year it would be 16k on top of the 25k in interest or 41k a year. This means you need a gross income of nearly 55k to just cover the house , no expenses or cost of living involved , just the house.
And remember this is a “starter” home , entry level for people that are young and new to their careers and what entry level young jobs are 26 an hour?
So before it was feasible for one income at 10 an hour to pay the mortgage AND have money left over for a family to survive and now one person needs to earn 2.6x that amount to just afford the house part and the other person is working to essentially afford bills and food
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