In this post, we will look at the America that the boomers grew up in, with particular focus on how easy it was for them to acquire real estate.
The basic fact of modern America is that boomers have all the houses, and they work hard to make sure they keep their value. This underpins a lot of generational warfare, and breeds resentment among millennials, who loathe being told that if only they quit their avocado toast habit, they too will soon join the homeowners class. Disgruntled, they respond that if the houses were as cheap as they had been back in boomers’ youth, they too would be able to afford a house, a car, pay for their (usually hypothetical) children’s college, and generally enjoy the same pleasures a typical boomers could easily afford, like carefree backpacking trip through Europe or cocaine.
The problem with this narrative is that it’s basically false. Boomers in their youth had it worse than the millennials did. In this post, I will show this, using easily available economic data, and then spend some time discussing some reasons why the perception of reality is so skewed.
Assumptions
We will focus on years 1975-1985, which is around when most boomers acquired their starter homes. We will compare these to years 2021-2022, for which fairly complete economic data is available. We will use CPI for inflation adjustment.
Housing market as seen by boomers
It is easy to come up with examples of boomers striking it rich by buying cheap houses and holding. NYT article from 1984 about rising house prices recounts experience of a couple who bought a brownstone in Sunset Park, Brooklyn, NYC for $78,000 (in 1984 dollars, $215,000 in 2022 dollars). A similar townhome there today probably starts at $1.5M+. That’s a real appreciation of 7-10 times, and it averages out to something like $30-40k a year, which is more than what tens of millions of Americans make in their full time job. Just owning that house effectively equals an additional paycheck going straight into the retirement accounts.
This, however, tells us little about the experience of the average boomer. Sure, some of them won big by buying a Brooklyn brownstone, but others bought in a nice place like Gary, Indiana (which was still doing okay when oldest boomers were entering home-buying age), and saw their house value plummet in subsequent decades. Focusing on outliers and hot metros is not instructive if we want to understand the experience of an average boomer. Therefore, we will look at average (or median, if possible) house prices.
So, how much did the houses actually cost in boomers’ youth? There are many data sources we could use to answer this question, but probably the easiest way is to look at prices of new construction. These rarely differ much from prices of used houses and, more importantly, the ratio of new to used price is relatively constant over time.
The resource I will use here is US Census Characteristics of New Housing report. Its data goes back far enough. Let’s dive in.
Here’s data for years 1976-1985 (sources: 1, 2):
While the nominal price keeps climbing, after adjusting for inflation, goes up and down year over year. Nonetheless, taking the average of the typical new home price in that decade, we obtain $180,000 (2022 dollars), which sounds just unfair to millennial ears.
Indeed, using the same census.gov data, we can find that in 2022, the median price per square foot was around $190, resulting in median new home price of $457,800. this is more than twice as much as what boomers paid.
There is a huge (and a couple of smaller ones) elephant in the room here, however: affordability.
Affordability
Ability to buy a house depends mainly on two components: how much it costs to do so, and how much money one makes. We already covered the prices, but that’s only half of the way to understand the cost. Since almost everyone gets a mortgage to buy a starter home, instead of sticker price, we should consider what is the monthly mortgage payment. This brings us to the aspect of boomer life that’s almost universally ignored by younger combatants in the generational warfare: interest rates.
Let’s find out how much was the monthly loan payment assuming standard mortgage terms: 30 years fixed, 20% down, and average mortgage interest years in the given year. We can obtain interest rate data from FRED, and combine it with the table above to obtain:
Averaging these out, the typical monthly payment on a new house in the decade of 1976-1985 was around $1,520.
Now, what’s the typical monthly loan payment for millenials in 2022? Average mortgage rate in 2022 was 5.34%, which is much lower than what boomers faced. The resulting loan payment on a median $457,800 home ends up $2,043. This is certainly more than what typical boomer had to pay, but not that much more, really. Moreover, the year 2022 marked a drastic change in the housing market, due to the departure from low interest rate policy of central bank, which prevailed through previous decade. The average mortgage interest rate in years of 2011-2021 was 3.78%, and if we rerun the mortgage payment calculation, we obtain the monthly payment of $1,700. This is much closer to boomer average, and in fact, is more than what some boomers had to pay.
Think about it: so much griping for measly $200/month difference. But hey, maybe the millennials are so whiny because of no wage growth, so this actually means a lot to them? Let’s look into that.
Incomes
We will look at median individual pre-tax income for full time workers. Median, to account for experience of a typical boomer. Individual, because, you know, back then, one can support the whole family on single income (or so I heard). Full-time, to avoid a composition error: if you keep the hourly wage constant but more people decide to work part-time, median income will seemingly go down, despite no actual change in experience of full-time workers. Pre-tax, because I’m too lazy to find or prepare post-tax data (but if someone has these at hand, I’d love to see them, and adjust the calculations accordingly).
FRED again has data for median usual real (i.e. inflation adjusted) weekly earnings, though unfortunately only starting at 1979:
A typical house would cost a median boomer something like 42% of his pre-tax income on loan payment. How do millennials compare?
Using the same FRED dataset of incomes, assuming the $1,700 monthly payment, we find that throughout 2011-2021, median millennial would spend 40% of his pre-tax income on loan payment. Yes, houses were more affordable to millennials than to boomers. I was surprised when I first learned it, but turns out that this is largely a function of interest rates. Boomers just had mortgages at rates that were often higher than the APR on millennial’s credit cards. Millennials have no idea about it, because they haven’t lived through it, most of their lived experience is throughout the ZIRP era.
But wait, we’re not done yet.
Quality of life
If we look back at the Characteristics of New Housing 1976-1985 table above, we can see data column that we haven’t discussed: median square footage of a new house. Throughout these years, it averaged 1,600 square feet (148 square meters). That’s a quite small house by today’s standards1.
Indeed, the median 2022 house that we already noted is $457,800 is actually 2400 square foot, 50% bigger than what boomers would buy. Yes, millennials paid about as large share of their income as boomers for 50% bigger house than them.
The extra bedrooms, bathrooms, and garage space already, by itself, increase the quality of life for millennials relative to young boomers, but the houses themselves are also better: the prevalence of whole-house air-conditioning has increased from around two-thirds of new houses in the late 1970s to effectively 100% today. Hardwood flooring were effectively nonexistent in new homes in 1980, but today a third of the new homes have them. Houses today have higher ceilings, larger windows (which are themselves of higher quality: they’re more energy efficient and less drafty). They have more electric outlets, more lighting fixtures (and light itself is much cheaper too), and generally more fancy features like heated floors, hot water recirculators, smart garage openers, smart door locks etc.
Why then are millennials so whiny?
Perceptions
In my opinion, millennials complain about housing, because the incentives they face are not conducive to becoming a houseowner. There are a couple of mechanisms acting together to create this result (in no particular order):
College education: a lot more millennials than boomers go to college. This is a terrible thing from society’s perspective. This makes home buying more difficult in two ways: first, it delays your money-making career, and second, it saddles you with debt, which reduces your ability to make mortgage payment. The college is also more expensive than during boomers’ youth, but that’s less important than the fact that fewer boomers attended it in the first place.
Delayed family formation: it is a lot easier to buy a house with two incomes than one. Most boomers, and especially most boomer women, were already long married by age of 30. Contrary to what many incorrectly believe, most boomer women worked, and at rates only slightly lower than women today. Marrying at 22 makes it much easier to commit to mortgage at 26. Men are also more motivated to make money when they are married with children.
This actually acts together with increased college education: college education delays marriage by itself, but also it makes many college educated people believe that they actually have a career instead of just a job. Such beliefs cause women to delay childbearing, which usually acts as a strong motivator to procure comfortable housing.Metro concentration: we focused on medians here, but a lot of griping online comes from the extremely-online group which happens to live at high rates in a bunch of very attractive metro areas, like NYC, SFBA, or DC. In these metros, the housing prices did indeed skyrocket, and it is much less affordable than those same places were to boomers.
Now, this is actually a topic for another big post about another thing that many millennials don’t realize, which is that many of the today highly attractive metros were, in boomers’ youth, freshly ethnically cleansed violent hell-holes. But, even ignoring that, while median house is more affordable to a typical millennial than it was to a typical boomer, a median very-online millennial (especially the kind that thinks of herself as “journalist”, which is responsible for a lot of online complaining) might indeed be worse off than boomers in those same places.Opportunity cost: millennials have many more ways to spend money than boomers, and so they do. Millennials do spend more money on eating out, and less than on cooking at home: there is some truth to avocado toast story.2 They buy more physical and virtual stuff than boomers had, and spend more on experiences. The image of boomer youth backpacking through Europe is almost entirely imaginary: fewer than 3% of young boomers even had a passport. As for cocaine, I’m actually not so sure.
This all adds up: if you don’t spend on eating out, on vacation flights and hotels, on Netflix and Spotify, on Steam games etc, you end up with more money you can stuff into mortgage. Boomers had their own ways to spend, but they simply had less of it, and just spent less. Flying to Miami for a spring break, staying in a hotel and clubbing was simply something that practically no boomers did.
Conclusions
What to make of all of it? My recommendation here is simple: get married and have children early. You’ll then find that buying a house is one of the easier problems you are facing, discover strong motivation to solve it, and the alternative ways to spend money will no longer seem to you very attractive. Go, and fulfill your telos.
By American standards, that is. I’m sorry, Europeans!
In fact, we observe the trend of increased food delivery spend, which is even more expensive.