If I were to make a list of things that are a giant waste of time, complaining about other generations would be pretty high on the list. And yet, people of all ages do it.
The older you get, the more this becomes a thing. My grandparents do this the most, since they’ve got two generations to complain about. Boomers do a quite a bit of it too, especially after witnessing someone under 30 TEXTING AT WORK. Oh, the humanity. Even the older millennials complain about the younger ones.
I previously wrote about what a gigantic waste of time the whole exercise is.
But these days, the millennials are fighting back, dammit! No, not by working harder, or making a difference in some positive way, but by bitching about the boomers. This has been especially prevalent in the PF world, with boomers getting blamed for everything from Canada’s housing bubble to directly contributing to the average millennial’s “sense of entitlement”, whatever that crap means.
Specifically, the financial argument goes like this. Back in the 1980s, boomers were making $30,000 per year buying houses that cost $60,000 per year after either going to cheap colleges or getting a good job out of high school. And yet they constantly rag on millennials to move out of their damn basements even though the average millennial makes considerably less trying to enter a real estate market that is vastly overvalued.
But is this actually true? We know the price of college and university has gone up considerably, as has the price of housing. And millennials have expenses their parents never did, like smartphone plans, laptops, and a million other gadgets.
Let’s crunch the numbers a little bit and have a look, specifically looking at housing.
Buying a house: 1985 vs. 2015
Let’s start with housing. Was it really that much easier to buy a place in 1985 compared to now?
First, we need an accurate picture of what it was like for someone buying a house in 1985. We know that CMHC mortgage insurance didn’t come into force until the early 1990s, so a home buyer in 1985 would have been forced to put 25% down. These days, 5% down payments are common.
We also need to know the average price for a house, the median income, and all that jazz. The internet can help us out with that.
From a previous blog post, I know that the average Canadian house cost $76,214 back in 1984. The median family earned about $41,300, and the five-year fixed mortgage rate was about 13%.
The payment came out to $630 per month for a 25-year mortgage. That’s a mere 18% of the average family’s earnings, which seems quite low.
These days, the average Canadian house is about $433,000, while the median household income has increased to $76,000. We’ll say the average five-year mortgage rate is 2.79%.
Based on a 25% down payment, you’d be looking at a $1502 payment each month. That works out to approximately 23.7% of the average family’s income going towards buying a house.
It would appear that it was clearly cheaper to buy a place in 1984 or 1985. After all, most millennials would argue that it was a whole hell of a lot easier to save up a 25% down payment back in the day. A $19,000 down payment took less than six months of gross salary to save. A $108,250 down payment would take more than a year and a half of earning power these days to amass.
So congratulations, millennials, you do indeed have it tougher than the average boomer did 30 years ago. Rejoice!… for some reason.
Is it really apples to apples?
Unfortunately, I’m not entirely sure we’re making an apples to apples comparison here. Why? Because real estate was generally depressed in Canada in 1984-85.
It turns out that 1984 was one of the best times to get into the real estate market in recent Canadian history.
What happens if we take the average Canadian family and see if they buy a place in 1989, right when the bubble was about to burst?
But let’s go a little further. Let’s assume they were buying in Toronto, which was ground zero for the real estate bubble of the late 1980s and early 1990s.
In 1989, the price of Toronto houses peaked at $273,698. In 1984, it was $102,318, and in 1985, it was just $109,094. That’s a hell of a jump in just a few years, which is very much the same as we’ve seen in the past few years.
It was a little harder for me to find the national median salary for 1989, but based on it growing by just the level of inflation, we can assume the median family was pulling in $51,285 in 1989. The average five-year fixed mortgage rate in 1989 was 9.75%.
Based again on a 25% down payment, the average house in Toronto cost $1,802 per month. That’s a whopping 42% of the average family’s income that just went towards mortgage payments. That’s almost double the percentage as someone would be paying now during Canada’s current housing bubble.
The point is simple. You can’t just pick one arbitrary endpoint and declare it was much easier for a WHOLE FREAKING GENERATION of people because it proves your thesis. It turns out that 30 years ago was one of the best times in the history of the country to buy a place.
30 years ago it was quite easy to buy a place. In the early 2000s it was also quite affordable. But there are also times when it wasn’t, times that many baby boomers were in fact buying their first houses.
It shouldn’t be a newsflash to anyone that it’s more expensive to buy a house when prices are high. These things move in cycles, and right now is not a good time for a first-time buyer to get in. Just rent and wait for the market to come back to you. I assure you, it’ll happen at some point.