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…
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Those boomers got a house at 50000$, which means the interest is 7500$
Where I’m from, interest rate is 5%, but a house costs 700000$, whic means 35000$ in interest.
Also, the difference between salaries and hous pruces is much bigger now, than back then, so we’re getting double fucked.
Back in the 1870s, I just asked for some land and then built a house on it. Everybody since is just lazy.
While everybody is fighting over interest rate vs house prices were all forgetting the “of the time” whole basket.
In the 70s and early 80s one didn’t worry about:
1) healthcare costs and accounting for the potential of medical bankruptcy.
2) maintaining two working cars so double the gas cost cause now both partners in the house must work to make ends meet
3) gas prices for said cars
4) current car insurance prices being multiple X than what they used to be
5) every other insurance being more expansive than it used to be
6) subscription services costing several times more monthly than what they used to cost back then
7) more people having had pensions and not needing to worry about putting a portion of their salary away into a 401k
Overall the burden these days is higher on all age groups on a monthly basis as compared to what it was back then. Was life easy in the 80s? No. But American life had a couple more safety nets that made the picture look less dark than it feels these days.
Interest rates haven’t been this high in over 20 years.
Pointing out that they used to be even higher is irrelevant, as it changes nothing.
I mean, comparing 2021 to 1980. Median household income in 1980 was $21k, with the average home costing $47k. In 2021 those numbers were $71k and $346k. This is average too, the east and west coasts are significantly more out of whack. The same interest rate on a home 5x your salary will have a much bigger impact than one that is 2x your salary. Its not just houses but everything is more expensive, so people now are much more sensitive to interest rate changes.
Additionally we basically went from having historically low interest rates to historically average interest rates. Meaning people with these low fixed rates are not putting their homes on the market, since even buying a home that is the same price will increase your payment significantly. This keeps homes at elevated prices due to low supply. Its al a bad feedback loop right now.
Partly because wages have stagnated relative to inflation.
So if you madea median US salary of $29,000 in 1990, and bought a top trim Honda Civic for $5500 at 12% for 5 years, about 5% of your income. That’s $123/mo That ends up costing about $7,400 over the life of the loan. You could readily find 36 month CDs to invest any disposable income at 8%.
In 2022 dollars that would be $67,500 in salary, $12,815 for the car at $285/month.
In the years since, now median income is now only $45,000, that Civic is $29,000 at 8.3%. That’s $592/month, 16% of your monthly income,a total of over $35,000. That’s on top of everything else being 1/3rd more expensive relative to your wages (due to the decreased value of the dollar via inflation outpacing wage growth) so you’re even less likely to be able to take advantage of a comparable 36 month CD which are only yielding 4.7%.
So today the interest rate is being applied to a proportionally larger principle, people are being paid less in terms of buying power, and investments are far less beneficial for those who can take advantage of them.
Here to help put into perspective.
In 2017, the median housing price for a single family home in my city was $750,000.
Today, in 2023, it is $1,300,000.
1) Year: 2017. $750,000 house @ 2.5% interest rate. $3,300/month payments over a 25 year plan. Our province’s average net-salary was $60,000. You would need a yearly gross income of $140,000 to finance this.
2) Year: 2023. $1,300,000 house @ 6.5% interest rate. $8,700/month payments over a 25 year plan. Average net-salary is currently $68,000. You need a yearly gross income of $420,000 to afford this…
You first might think, holy shit! Almost triple the income for the exact same house?! It gets worse.
Back to 1) Your total interest payments comes to $257,000, making the final cost at the end ~$1,000,000.
2) Your total interest payments comes to $1,300,000, making the final cost at the end ~$2,600,000.
In the last 6 years, you now will owe the bank 1.6 million dollars MORE, for the exact same house, if purchased now vs 6 years ago. This isn’t even “oh, back in 1980 vs now” thing. We’re talking the last SIX YEARS. Let that sink in. This doesn’t even factor in the quickly rising costs of EVERYTHING, from groceries, gas, insurance… When people say the new generation is fucked, this is why. Nobody will afford anything. Good luck!
There’s been a big run-up in home prices over the past 3-4 years. That wasn’t a huge deal when interest rates were at 3%, but it makes monthly payments for homes at 8% a lot more expensive.
Ordinarily, rising interest rates would put downward pressure on home prices, just due to supply and demand. But, the rise from 3% to be 8% was sudden, and it created big disincentives to sell. If your mortgage is at 3%, you don’t want to move. And, so supply stays tight, keeping prices high.
My theory is that someone who is radical one way or another is going to see any view that’s not as “radical” as theirs as the other side.
There are many people on the right who think that anyone who advocates for basic health care is automatically a communist even if they themselves are on the right
The fear was that people and companies had to much variable debt. Debt is good for growth when it’s cheap (low interest rates) and bad for growth when it’s expensive(high interest rates). So if everyone had to start paying more towards their debt it would take away from stimulating the economy and leading to some businesses to go bankrupt. This would continue until we were in a recession. The good news so far is that the economy hasn’t broke yet so we may see high interest rates for a long time.
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