The blame game

Trigger Warning: The following may be injurious to young adults, including Millennials, Gen Zs and Alphas. Anxiety may rise to toxic levels. Do not read while chewing cannabis gummies, vaping or lying very still so your butt can be tattooed. In cases of extreme distress, log onto Reddit.

When Dorothy and I got our first home, late seventies, the mortgage rate was 12.5%. The house cost sixty grand to build on a small piece of treeless rural land we paid thirty for. When we sold I was impressed we almost got all our money back – since I (naively) thought a house was what you paid to live in, not an investment. We lost money. But not a lot. I was cool.

Years later, 1990, we bought house in Ottawa when I was an MP. My income was $82,000 and the mortgage rate was 14%. It was a dumb thing to do, since I lost my job in the autumn of 1993 and we were forced to move so I could get work. The house sat on the market for months, until purchased by a key advisor to Jean Chretien. He robbed me, but c’est la vie. Had to sell. It was a recession.

The moral: real estate, sometimes, can cost a bundle. Financing charges are a killer. Market dips can be disastrous. Houses can turn illiquid. Your meagre wealth can be stolen.

But wait. Aren’t wild-eyed, angry Mills telling us on this blog repeatedly that the Boomers “were born on third base’? The kiddos believe decades of endless inflation, price growth and economic boom brought jobs-for-all, cheap homes and swelling net worth. The wrinklies made out like bandits. And today’s young adults are reaping a bitter harvest of residue. Wrecked economy. Dim future. Houses nobody can now afford. The old farts took all the money.

Where does truth lie? Did folks like us skate through adulthood on rising prosperity having won the birth lottery? Or is history being reinvented by the young to justify a dodgy work ethic, excessive schooling, delayed adulthood and unrealistic entitlement?

Here’s a study that makes you wonder. It’s American, but nonetheless instructive. It analyzed home prices, mortgage rates, inflation and incomes to get a measure of how hard it’s been, by generation, to own and carry a residence.

Conclusion: “The analysis of historic home prices, income levels and mortgage rates found that baby boomers — between the ages of 60 and 78 this year — “arguably faced the toughest housing market ever for first-time buyers.“ In 1980, when boomers were entering their prime homebuying years, mortgage rates spiked above 16% and the average monthly home loan payment jumped 34% year over year.”

And this: “During the years when boomers turned 30, the share of median household income needed to make the typical mortgage payment averaged 33.2%, the highest of any living generation. In contrast, millennials on average faced the lowest mortgage burdens, thanks to a decade of ultralow interest rates following the Great Recession.“

The methodology looked not only at historic and current home prices, but what families have earned and the inflationary environment over time. In other words, what’s been the real burden of real estate? The report assumed a 10% down payment and a 30-year fixed-rate mortgage (sadly we can only lock in for five).

While Boomers (at age 30) experienced an income/financing burden of 33%, GenXers (aged 44-59) were at 25.8% and Millennials turning 30 face one of 22.6%. The reasons are simple. Incomes are vastly higher (for example, MPs now make $203,000, or 144% more than I did) and mortgage rates are stunningly lower (even at the current 5%).

Another way of looking at things is to calculate the front-end debt-to-income ratio, by generation. To be affordable, a mortgage should come in at 28%. But during the years the Boomers were moving the market (when the oldest were 35), the ratio hit the highest level in history – 53.69%. That was the autumn of 1981.

“Ratios dropped steadily over the next 30 years,” says the study, “before ascending again over the past decade. For millennials entering the market at the start of the COVID-19 pandemic in 2020, the average DTI ratio was 20.25%. Today, it is 33.42%.”

Moreover, the unemployment rate in 1983 was 12%. A decade later, when I was turfed from my job, it was still 11.4%. Lately the rate has been south of 6% with a record number of job openings. And, by the way, seven in ten families paid income tax in the 1980s. Today 40% pay nothing after receiving government benefit payments like the kiddie pogey.

None of this is to say buying a house now is easy. It’s not. It’s horrible. Prices are stupid. Inventory is still historically low. There’s a mortgage stress test. Nobody’s building affordable homes. And taxes on real estate are a new government growth industry. Real estate is probably the least affordable it’s been in decades. But not in generations.

Lately house prices have moderated a bit. Mortgage rates have fallen a tad. Incomes have been outpacing inflation, which is dropping. There’s more to come. And billions in public money is being spent to make real estate more accessible.

We’ll accept a certain amount of whimpering. Even some moaning. We have empathy.

But never say we don’t understand. Or, worse, that we caused it. Boomers stopped piling into real estate long ago. Looks like this one’s on you.

About the picture: “Love your blog! 35 year old millennial, and I’ve been following along daily for seven years. Thank you for keeping your cool and providing a moderate voice as a balance to the wild sensationalism in the news and media these days,” writes Sean. “Your persistent message to stay the course is an antidote to the FOMO and doom-preaching that seems to get views and sell ads. I have so far avoided getting a mortgage, and instead, am trying to stay balanced and diversified with a portfolio of ETFs. As urgently requested, here is a pic of our sweet little mystery pup – Monty. He’s 11 weeks old from a rescue litter, so blog dogs’ best guess what mix he is. It’s me and my gal’s first puppy and we have nearly had him for a month. Super smart little dude when you can get him to pay attention, but he’d rather be chewing on a piece of wood most of the time!

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.