Who had it tougher to buy a house? A baby boomer then or a young person today?

One of the scariest times in my economic life was in the 1980s when interest rates were on a seemingly endless march higher and culminated in home loan interest rates hitting 17% in 1990. This was followed up by then-Treasurer Paul Keating’s “recession we had to have”, which saw the unemployment rate spike to 10.4%!

Think about it: one in 10 Aussie workers had lost their jobs!

I can still remember listening to the radio each morning at the breakfast table in my Victorian working man’s cottage in Paddington, hearing that home loan interest rates would rise again.

The only plus we had then was that we bought the Paddo house for $54,000 in 1979.

So we were suffering inside a house in need of a substantial renovation and restoration and the only real plus was that one day it would be worth over a million dollars and become the springboard for wealth-building. It was no sleigh ride but at least our Christmas’s would one day show up.

Now what has got me a little cranky is the work of the Grattan Institute that says young borrowers of today are actually doing it harder than we did. My memory of being a school teacher, having a cleaning job and working at the Paddo-Woollahra RSL to make ends meet, never reconciles with the battler lives of young people I see today. But maybe I’m blinded by own bias.

Last week, RateCity did a comparison of borrowers in the 1980s versus borrowers of today and the results are a little more to my liking. RateCity’s Sally Tindall saw the past this way: “The highest interest rate on record was in February 1990 at 17 per cent – a reality many Australians would rather forget.

“Now we’re living in a period of record-long, record-low interest rates.

 “The key difference between 1990 and today is that average mortgages have risen nearly two times faster than wages.

 “So, when it comes to paying down the mortgage each month, when you factor in the record low interest rates, we’re actually better off.”

However, Sally makes this further point: “But ask a first home buyer to stump up a 20 per cent deposit today, and you’ve got them snookered before they’ve even started,” she said.

Source: RBA lending indicator rates, ABS Housing Finance Australia, Housing Finance Commitments, ABS Average Weekly Earnings Australia – Original.

I think this settles one part of the argument that for anyone in a home today with the average size loan for Australians, compared to the average size loan for Aussies in 1990, the current day homeowner is more comfortable.

“If a single person took out an average sized home loan in the 1990s when rates were at 17 per cent, they would have spent 42.45 per cent of their income on mortgage repayments,” Sally points out.

“If they took out the same loan today with a lower rate of 4.50 per cent, taking into account house price increases and wages growth, the same person would spend 28.91 per cent of their income on mortgage repayments.”

But that’s a comparison of averages. When you get away from averages, the modern day borrower plays catch up in the pain stakes.

Note the average loan in the table for today’s borrowers — it’s $388,100 —so anyone living outside of Sydney and Melbourne or living in average apartments in the not-too-expensive parts of these two capital cities would have to accept that baby boomers did it tougher in the 1990s.

However, for home buyers in Sydney and Melbourne, or in expensive suburbs of other capital cities (even in apartments), the average size loan could be double the amount and even triple!

These people could be worse off but it depends on their income. And many of these people could be couples both on high incomes greater than $81,619, which was the average income used in RateCity’s example.

It looks like it’s choice of where to live makes borrowing for a home tougher nowadays, compared to the battlers of the late 1980s and 1990.

But you might say, “hang on, you were living in Paddo, which is hardly a battler’s suburb!” Well, that’s the story then but when we moved into Paddington it was a relatively cheap suburb, with potential. When my father-in-law saw the ‘dump’ that his dear little girl had bought with her dumb husband, he said: “Love, you have to sell this as fast as you can!”

And by the way, many couples then were single-income families, as the age of the working mum and childcare was only in its infancy. That’s why lots of people had to work second and third jobs to make their home loan repayments.

It looks like baby boomers, who are often seen as the generation who had it all, actually did suffer for their success, if only for a few bad years around 1990. That said, 17% home loan interest rates and 10.4% unemployment is pretty damn bad, compared to 4.5% home loans and 5.6% unemployment.

This article was written by Peter Switzer for Switzer Daily and originally appeared on their website on June 4, 2018.