Sunday, May 01, 2005

The Big Empty, by Lezah

The Big Empty

I was talking to someone the other day, and he was marveling at the fact that his parents had been able to pay off their mortgages in less than ten years and then invest their money, whereas this fellow was going to be paying his own mortgage off for another thirty-odd years - for a single family residence, similar to the one in which he grew up.

I had three words for him: run-away inflation (maybe that actually counts as two, with the hyphen?). Anyway, when I pointed out to him that his parents would have likely benefitted from the run-away inflation of the 1970s, he was somewhat taken aback.  Wasn't inflation a bad thing, economically?  Well, as I pointed out to him, it's all a matter of timing.

Probably this is what happened: his parents bought low and sold high - as simple as that. And at the same time, incomes were rising at an incredible rate.  In the early '60s, your average income earner might make $400 a month, and might pay $6000 for a house (depending on the job and neighbourhood, of course). By the late '60s, they were looking at housing prices that were $20,000-30,000 but annual incomes had risen, too - so if you were in your first house, still, you were probably mortgage free now, and could afford to sell at a profit and buy in without much mortgage on a newer, bigger house. By the mid to late '70s? That person who was making $400 a month 15-20 years earlier could quite conceivably be making $30-50,000 a year! That's an incredible increase. So the financial security of many of our recently-retired seniors was all a matter of timing - and dumb luck, in a lot of cases.

Of course, those slightly younger people who got into the housing market in the late '70s-early '80s didn't benefit from inflation like those that came before them did:  they did get the higher incomes, but they also had to pay the incredible interest rates of the time, and many just couldn't keep up with the payments. There were lots and lots of people who lost their homes.

Fast forward twenty years. My own house cost me around $200,000 about five years ago; it's certainly worth more now, in today's market, so I could sell at a profit, but I'd be buying in elsewhere in the same inflated housing market that would quickly eat up any profits I had realized. And my income? Am I ever going to be in a situation where I make more money than my house once cost me? The answer is a resounding no. Am I bitter? You betcha!


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