No country for young men — UK generation gap widens

setmefree2

posh*spice wrote: »

Because Haters Gonna Hate.....

Ain't that the truth - it's Generation X and Y biding up the price of property - not Baby Boomers...

setmefree2

Physics wrote: »

Because the cost of loans depends on the rate of inflation.

Look, I'm going to quite the great Martin Lewis who kindly set up this board, and has a crack at explaining this concept with regards to student loans:

"For those who started university before 2012, there was no 'real' cost to borrowing money via student loans, as the interest rate was set at the rate of inflation (RPI). So borrow a shopping trolley worth of goods and you'll repay enough to buy the same, even though the actual cash amount may increase "

If you'd like to read more about real vs nominal interest rates, Wikipedia has a good explanation. But if you don't care, you don't care - and none of my answers to your questions will change that.

I understand the concept of a real interest rate.

What I still don't understand is your point in relation to Baby Boomers and Generation X and Y?

Physics

setmefree2 wrote: »

I understand the concept of a real interest rate.

What I still don't understand is your point in relation to Baby Boomers and generation X and Y?

Your argument, roughly but I think fairly stated, was that when you look at interest rates in the past, they are higher than now. So even though previous generations bought houses at much lower income multiples, they paid higher interest rates. The cost was higher (as you put it) than we'd think.

My point is that it's not so clear cut when you look at inflation. Real interest rates are nowhere near as different as nominal interest rates when you compare across the generations. The costs, when you factor in high inflation, are lower than you'd think. The effect of this would be that though certainly the opening year or two would have been as, if not more, painful than today, this cost quickly evaporated to become a fraction of the monthly paycheck/grocery bill/rent cost (pick your inflation measure).

In contrast, today's (or more recent) mortgages might have similar or even less apparent costs, but that cost won't become a fraction of your take home pay as quickly. The FT article I linked has a pretty good analysis of this in more detail.

Now, maybe you are still right. That's fine too. But the appropriate way to make your argument is to consider real, not nominal interest rates. That's what I was saying: and it's only related to baby boomers as your argument is. I was pointing out a flaw in your analysis, not taking a position either way.

I thought this was clear, so I'm sorry if it wasn't.

setmefree2

Physics wrote: »

Your argument, roughly but I think fairly stated, was that when you look at interest rates in the past, they are higher than now. So even though previous generations bought houses at much lower income multiples, they paid higher interest rates.

My point is that it's not so clear cut when you look at inflation. Real interest rates are nowhere near as different as nominal interest rates when you compare across the generations.

I thought this was clear, so I'm sorry if it wasn't.

If households (at any point in time) have averagely £600 per month to spend on a home - £600 is where the market will settle - whether the repayments are capital or interest. If the interest rate is low - the price of houses goes up - and vice versa. So forget about whether the interest rate is real or nominal. It's not relevant.The Baby Boomers paid the market rate for their homes.

I also would like to make the additional point that Generation X and Y saw a whole generation of women go out to work full time and that pushed the cost of houses up - so blaming Boomers for that is disingenuous.

N1AK

setmefree2 wrote: »

So really if interest rates are low is it any surprise that house prices rise?

Your using a graph that shows interest rates as being low post-crash (when house prices have stagnated for a number of years) and where interest rates during the previous ~50 years are all over the place to suggest what?

Unless you really think people are buying houses and paying them off in ~6 years then you'd be showing a fundamental lack of understanding to suggest that you can infer anything about average interest rates for houses bought in the last decade or so from the post-crash rates.

setmefree2

N1AK wrote: »

Your using a graph that shows interest rates as being low post-crash (when house prices have stagnated for a number of years) and where interest rates during the previous ~50 years are all over the place to suggest what?

My point is that if the average household has £600 a month to spend on housing - BOTH house prices and interest rates will move so that supply and demand of houses reaches equilibrium. The Boomers must have paid a fair price for their houses as they paid the market rate. Nobody gave them a subsidy.

Just looking at house prices and saying Boomers had it easy makes no sense.

CLAPTON

Physics wrote: »

Because the cost of loans depends on the rate of inflation.

Look, I'm going to quite the great Martin Lewis who kindly set up this board, and has a crack at explaining this concept with regards to student loans:

"For those who started university before 2012, there was no 'real' cost to borrowing money via student loans, as the interest rate was set at the rate of inflation (RPI). So borrow a shopping trolley worth of goods and you'll repay enough to buy the same, even though the actual cash amount may increase "

If you'd like to read more about real vs nominal interest rates, Wikipedia has a good explanation. But if you don't care, you don't care - and none of my answers to your questions will change that.

the great Martin Lewis isn't great and is often wrong.

The relevant cost of buying a house is the cash flow in relation to income.

Whilst Martin might be using inflation as a proxi for wages that isn't the case in general.

In the 70s there was a wage freeze whilst both interest rate and inflation were high
Only an idiot would have said at that time that the high interest rates didn't matter as the 'real ' rate was lower due to high inflation as people were being squeezed by both interest rates and cost inflation.


In a situation (early 80s ) when wage rise were high and interest rates and inflation slackened then one could approximately say 'real' interest rates mattered.
However that is never correct only an accountants way of looking at the world

shaggydoo

Back in 1908 you could enjoy a pint of bitter in the pub for a penny, travel from Birmingham to London for 20p, and see the opening day of the 1908 Games from as little as 12p.


If you were among the 50,000 or so individuals who owned a car (around £400), petrol would cost just 4.7p per litre.


WOW they had it so easy.

shaggydoo

shaggydoo