2012 vs 1984: Young adults really do have it harder today

[Maccalus]

Originally Posted by Lt.Spears

I would gladly buy a 100K house at 19% interest over a 400K house at 4% interest simply because it would be MUCH MUCH easier to pay it off.

I think most of us would take a 100k house at 19% with todays salaries. When those were common average salaries were much, much lower than today.

[Lt.Spears]

Originally Posted by Maccalus

I think most of us would take a 100k house at 19% with todays salaries. When those were common average salaries were much, much lower than today.

Even at 30% less salary it would be easier to pay off because the inflation in housing is much higher than the inflation in wages.

[GP_Matt]

The $100000 mortgage taken out in 1980 at 19% interest works out to a monthly payment of $1540. Plugging that into the bank of Canada's inflation calculator it yields an inflation adjusted monthly mortgage payment of $4400. Using today's 4% interest rate you and a payment of $4400 you could buy a house worth $840000.
High interest and inflation can be a real bitch when they are working against you.

[afc wimbledon]

Growing up in London in the late 70's buying a house was never an option, it was only emigrating to Vancouver that enabled me to become a home owner.

[afc wimbledon]

Originally Posted by GP_Matt

The $100000 mortgage taken out in 1980 at 19% interest works out to a monthly payment of $1540. Plugging that into the bank of Canada's inflation calculator it yields an inflation adjusted monthly mortgage payment of $4400. Using today's 4% interest rate you and a payment of $4400 you could buy a house worth $840000.
High interest and inflation can be a real bitch when they are working against you.

You could buy a house in Shaughnessy for 100,000 in the 80's, my first house in Port Coquitlem on a 1/4 acre was about 80,000 in '87.

[blankall]

Originally Posted by afc wimbledon

Growing up in London in the late 70's buying a house was never an option, it was only emigrating to Vancouver that enabled me to become a home owner.

This is part of it. The previous generation of Canadians were horribly spoiled with their ability to gain wealth. In most parts of the world, most people don't get to build millions of dollars by owning one or multiple properties.

The idea of every family living in nice house with a backyard is a purely North American ideal. Things are changing, and our parents generation was a true rarity in human history.

[MarchHare]

Originally Posted by Maccalus

I think most of us would take a 100k house at 19% with todays salaries. When those were common average salaries were much, much lower than today.

Right, but the entire point of the article is to point out that average salaries have not kept pace with the price of housing or post-secondary education. If an entry-level Calgary job in 1980 paid $30k per year and a typical starter home cost $100k, then we should expect an entry level Calgary job in 2012 to pay $120k per year since a typical starter home is now $400k. Obviously that's not the case.

[blankall]

Originally Posted by GP_Matt

The $100000 mortgage taken out in 1980 at 19% interest works out to a monthly payment of $1540. Plugging that into the bank of Canada's inflation calculator it yields an inflation adjusted monthly mortgage payment of $4400. Using today's 4% interest rate you and a payment of $4400 you could buy a house worth $840000.
High interest and inflation can be a real bitch when they are working against you.

But if you look at the average incomes, if you were making 50k per year after taxes (which is what this article states many recent graduates were making), with lower rents and food prices, you could easily find a way to put aside 50k in 3 years even on one income. That was probably enough to buy a starter home (AKA a condo) outright and then save up for the real deal. Good luck doing that now.

Interest rates killed you back then, but you had much more opportunity to build capital through saving. The ratio of income to home price was many times higher.

The article points out that after tax income is 60k now. However, the price of food, rent, etc... has all gone up several times. It would take you 10-20 years of saving to buy a condo outright now. That's once you manage to land that 60k after tax (around 80-90k prior to tax) job. So basically, in 1984 you could probably own a condo outright fairly easily by the time you were in your early 30s and be looking to upgrade to your first full fledged home.

Currently, good look doing that before 45 or 50. And how are you supposed to fit having kids into that plan too.

[GP_Matt]

According to Stats Canada the Median income in 1980 in Canada was $41348 in 2005 dollars. Adjusted for inflation the median salary in 1980 was $16570 a year.

Lots of grads are making $80000 their first year out of school. A couple making $80000 a year each at the age of 22 should have no problem paying off any student loan debt and saving up to buy that $400000 house.

[MarchHare]

Lots of grads are making $80000 their first year out of school.

I think you're vastly over-estimating the number of people who make that much money right out of college. The average gross income for the entire country (which includes people in the prime of their careers after 20+ years in the workforce) is only $45k.

According to this site the average salary for someone with a Bachelor's Degree (not just recent graduates but all employees, including those with many years experience) is $69.9k.

For high-demand technology jobs, average starting salaries are between $40-50k according to this site.

For engineers, starting salaries range from about $45k to $60k (source).

[valo403]

Originally Posted by Sliver

Yeah, I'm not sure if people always did this or I'm just more aware of it with Facebook, but holy crap are people every mortgaging their futures for a couple weeks in a tropical vacation on a way-too frequent basis. Cheap-ass Mexico is one thing, but that's not where people are going.

Time off from work spent with family/friends relaxing in town or even a snowboarding vacation or something in Banff is basically as therapeutic as a $10,000 vacation to somewhere warmer. We are not all entitled to a visit to the tropics, people. If you're rich or come from family money, have at it. But if you're slogging away in your 9 to 5 I'm sorry, you can't afford the thousands a year to treat the world as your playground.

Did you ever consider that perhaps some people sacrifice other things in order to afford those trips?

[GP_Matt]

I suppose my viewpoint is biased as I work in the field in the oil and gas industry, but an engineering grad in my field is hired around $25 an hour or $52000 a year. They work in the field though with 12 hours being the standard shift and often work a 24 and 4 schedule. The overtime puts them averaging $1900 a week for 50 weeks to make $95000 a year. They don't always work that much though which is why I rounded it down to $80000.

Apprentices are getting $25/hour the day they leave high school with all of their education paid. Once they have a marketable skill they can get all the overtime they want and once they become journeymen their wage goes way up.

The whole country isn't like this, but it certainly is in Alberta. (You may have to leave Calgary and work like a dog though.)

[Bend it like Bourgeois]

Originally Posted by blankall

We're talking about the ability to graduate from school, get a job, and build equity.

I doubt this is any different than 30 years ago. What kind of place you start building equity in surely is, but probably not the opportunity.

[FlamesAddiction]

Don't forget the impact that fuel costs have today as well. I spend about 16 percent of my net take home pay on gasoline. I can't imagine it would have been nearly that much back in 1984. It's likely about half what a an average mortgage payment would be.

I can't say for sure that the cost of fuel was less back then compared to everything else (I imagine it was though), but for sure it was less cost prohibitive to at least live closer to the main business and industrial areas.

[opendoor]

Originally Posted by MarchHare

Right, but the entire point of the article is to point out that average salaries have not kept pace with the price of housing or post-secondary education. If an entry-level Calgary job in 1980 paid $30k per year and a typical starter home cost $100k, then we should expect an entry level Calgary job in 2012 to pay $120k per year since a typical starter home is now $400k. Obviously that's not the case.

But that completely ignores the month to month costs of owning a house which (rightly or wrongly) is all most people seem to care about and what drives prices. And low interest rates and long amortizations have driven down monthly costs for a given amount of money.

A 3:1 ratio of price to income would mean if the average family income was 90K that the average house should only be $270K. But under current interest rates that house could be had for slightly over $1100 a month with basically no money down. I don't think it's reasonable to expect the market to maintain prices at a point where the average family is only spending 15% of its gross income on rent/mortgage.

As interest rates go up, housing prices will come down, but price to income ratios don't mean a whole lot in a prolonged period of historically low interest rates. Long term they're good guidelines to follow, but most consumers aren't that rational or forward thinking so they'll sign up for whatever they can afford right now even if it's unsustainable.

I guess I just don't think comparing an era where you can get a 10 year mortgage for slightly over 4% to one where you'd be lucky to get any mortgage under 15% in absolute terms makes a whole lot of sense. Of course the price to income ratio is going to be lower in the higher interest rate environment.

[Sliver]

Originally Posted by valo403

Did you ever consider that perhaps some people sacrifice other things in order to afford those trips?

Since I'm not ######ed, yes I did consider that. If you don't know anybody that travels a lot and wants everything else at the expense of responsible financial management then good on you. To me, travel is the cherry on top of life that comes after RRSPs, RESPs, mortgage, VISA, and all other obligations are taken care of first. I know people who travel and have lived abroad on their line of credit. That's who I am referring to.

[Red]

Originally Posted by blankall

People are overlooking just how important the house is. In North America, that is the principle way that most people build wealth. If you're stuck renting longer and longer, it's going to take much longer to be able to build any kind of wealth.

Sure the modern world provides more opporunity to get drunk with your buddies, especially as people are having kids later and later. That's not really what we're talking about though. We're talking about the ability to graduate from school, get a job, and build equity.

"A house is a roof over your head and not an investment" - average Joe in 1985

"In North America, that (house) is the principle way that most people build wealth." - average Joe in 2012

Wonder why houses are so expensive.....

[linecook]

Oil was alot cheaper back then and made some things less expensive than they are now. In 1984, the price of oil was $28.75 ($62.47 adjusted for inflation) and that was considered high around that time. High oil prices that we are experiencing right now is only going to make things much more difficult and more expensive. The reason why we can afford so many luxuries that our parents couldn't is because of globalization and cheap labour. If oil prices continue to stay high or go higher, it may make things uneconomical to transport over seas and we may not be able to get huge TVs for $500. We may have to build them here!!!

[Lt.Spears]

Originally Posted by GP_Matt

According to Stats Canada the Median income in 1980 in Canada was $41348 in 2005 dollars. Adjusted for inflation the median salary in 1980 was $16570 a year.

Lots of grads are making $80000 their first year out of school. A couple making $80000 a year each at the age of 22 should have no problem paying off any student loan debt and saving up to buy that $400000 house.

My brother who works as a intermediate geologist just started making close to 80K after 5+ years of work.

No one i know who is a recent grad is making anything close to 80K a year unless they are doing fieldwork on the rigs.

For most people graduating they should be expecting to make 40-50 grand per year given the field.

To save up the 10-20% required for a DP shouldnt take that long, its the payments that are going to own you, Try telling a 1-2 year grad who makes 55K a year, that he has to spend over 1/2 of his monthly net income alone on mortgage payments. Makes it almost impossible to do.

There is a reason people are getting married/having kids at 30+ now instead of in their 20's, because its basically impossible to do.

[The Yen Man]

Originally Posted by Red

"A house is a roof over your head and not an investment" - average Joe in 1985

"In North America, that (house) is the principle way that most people build wealth." - average Joe in 2012

Wonder why houses are so expensive.....

This is the average Asian mentality. A lot of Asian people tell me, with a house, if the investment falls through, at least you still have the physical building. With stocks, you get worthless paper.