Some Musings on Housing, Renting, Wages and Perspective

Note: This is not going to be an in-depth, research-based, exploration of any of these topics. Many folks more knowledgeable than me have written much more useful information around these topics (Ben Carlson at A Wealth of Common Sense frequently talks about housing). But I still felt like I had something to say based on the general zeitgeist I get from many of the folks in the financial literacy classes for Colorado educators that I teach. This post may or may not be helpful in putting some things into perspective and perhaps causing some people to modify their overall perspective a bit.

A very frequent comment that comes up in my financial literacy classes is about the current unaffordability of housing (in this case, in Colorado). This applies to both home ownership and renting, and also frequently brings in the recent increases in inflation. Now, I want to be perfectly clear, I am in no way disputing that the cost of both housing and rent have recently increased tremendously in Colorado and that affordability is a huge issue. The combination of post-pandemic housing and rent increases and quickly rising mortgage rates, along with increased inflation and lowered housing stock is a real problem, particularly for young people just getting started. But the part I find particularly interesting is the general lack of acknowledgement of how much the folks who already had housing are the direct beneficiaries of this.

The Federal Reserve began raising mortgage rates in March 2022 and, ultimately, raised them at the fastest rate in history. There has been lots of discussion about this, both that they perhaps started too late and then rose too quickly and too high but, for the purposes of this discussion, that doesn’t really matter. Those much higher rates, along with general costs that have risen due to inflation and a large increase in home valuations has made it very, very difficult for first time home buyers to find something they can afford. Simultaneously, rent has also increased dramatically, due to inflation, low available of new rental properties, and just general profit taking. A lot of the folks in my classes are parents of teenagers or young adults just entering the workforce and are lamenting their prospects for being able to afford a place to live. Again, this is a real issue, although I’m also in the camp that home-ownership is often not the right choice for people (especially when they are first starting out).

But many of those same folks are ignoring the two or so decades that came before March 2022 (and especially the years post 2008). For some perspective, we bought our house in 1996 with a mortgage rate of 7.75%. Over the years we refinanced several times, bringing it down to 7.125%, then 5.375%, and ultimately 4.75% before paying it off (early) in 2014. In the historical scheme of things, this was fantastic. But it pales in comparison to anyone who purchased a house in the two or so decades before March 2022. Mortgage rates in March of 2002 were around 7%. (The average from 1971 to present is about 7.75%, with some very high periods in the late 1970s and through the 1980s.) Rates hovered in the 6-7% range until 2008 when they began to dive, dropping below 5%, and then 4%, and then eventually 3%. These were certainly once in a generation interest rates, and possible once in a lifetime. (And inflation was much lower than historical averages, current inflation has in effect just “balanced things out.”) Rates got so low that I seriously considered taking out a mortgage on our already paid off house just to invest the money as an arbitrage opportunity, but my aversion to debt kept me from pulling the trigger.

This means that anyone who owned a home during this time almost certainly was able to refinance below 4% for 30 years, and quite a few were able to refinance below 3%. This is a gift that keeps on giving and will boost their finances in a permanent fashion that I think most of them are completely unaware of, especially when you combine it with the accelerated appreciation in the value of their houses over the last few years. (As a side effect, however, this is causing problems in the housing market as these folks will be very hesitant to sell.)


For all the folks who are (rightly) concerned about current housing affordability for new purchasers, they should at least acknowledge how good they had it previously and how they are benefiting tremendously from this situation.

source is YCharts, but I’ve lost track of where I found it

And, yes, rent has increased dramatically as well. But, again, it’s helpful to zoom out. Rents are still coming down (albeit much more slowly) and are about the same level as they were at the beginning of 2018.

And while wage increases for people on the lower end has historically paled in comparison to the high end (and wage and income inequality is still a huge issue), lately at least the news has been a bit better.

To be perfectly clear, this is no way makes up for the tremendous differences in wage (and wealth) growth between low earners and high earners since the early 1980s. But it it at least a positive trend over the recent few years and I think is the reason I felt compelled to write this blog post. It seems very similar to the how most people think the school their kid goes to is generally great, but education in general is horrible. Most people seem to think the economy is horrible, even though they seem to be doing okay (and the statistics show that the economy is doing incredibly well, especially since we are still recovering from a global pandemic).

So, those of you who know me (either personally or virtually) know that I’m generally a pretty negative person (“the glass is not only half-empty, but it’s dirty around the rim”). Which makes me really question what is causing this current zeitgeist. I have many, many serious concerns around climate change, politics, and various other issues, but even to me it seems like the general consensus around financial matters is, to use a technical term, bonkers. Everyone’s individual circumstances, of course, are different, but I guess I would ask folks whose gut reaction is that “things are horrible” take a step back and try to find some perspective. Things undoubtedly are pretty bad for some folks (especially folks just entering the housing market), and if someone in your family has health issues or has recently been laid off, then all the statistics in the world won’t change your situation. But if that’s not you, perhaps pause a moment before telling a friend how horrible things are, or posting on social media, or commenting on an online financial literacy class :-). As the saying goes, you are entitled to your own opinions, but not to your own facts.

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