Reply to Why is DCUM SO conservative with housing?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]People comparing their expenses to their parents is always interesting to me.  So if the mid-40’s pp whose parents bought a $145,000 house bought it around when he/she was born, that would be about 1975. (FWIW, $145,000 was an expensive house in 1975!) Accounting for inflation, that would be about $740,000 today. Also note that the average 30-year interest rate in 1975 was 9.05%.  That interest rate, as compared to today, effectively doubles the payment. They were paying about $1,100 a month if they put $20,000 down. Adjusted for inflation, that would be about $5,600 today. At a 3% interest rate, that would buy about a $1.4 million house (with 20% down).

So, somewhat cheaper than today, but not the OMG, a house for $145k(!) cheap.  People also forget how expensive things were in the 70’s. Gasoline prices were about the same as today, adjusted for inflation. Clothing prices were much higher. An “inexpensive” t-shirt at the Mall was around $10, which would be about $50 in today’s dollars. We just didn’t have the kind of inexpensive consumer goods that we have today.

Note that if the $145,000 had been invested in the stock market in investments that tracked the DJIA, the stocks would be worth over $5 million today. [/quote]

I am that PP. they bought it in 1989. [/quote]

In 1989, interest rates were as high as 11%. [/quote]

Yes, but those 14 years throw off all the other calculations.

Importantly, as PP points at, at about 3.6% inflation, a $145K would be work $740K.  But it is not - it is worth $2M.

Even more importantly, and taking into account the actual year of purchase (1989), using 3.6% inflation, the home would only be worth $450K today.  Again, it is worth $2M.

At 11%, $116K mortgage in 1989 is $1105, or $3426 today adjusted for inflation (using the 3.6% PP used).  That gets you a mortgage of about $812K at 3%, or a $1,015,000 home with 20% down.  Again, there home is worth twice that now.

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