In a viral video, a TikTok realtor by the name of Freddie Smith laid out in clear terms why it’s extremely difficult for Millennials to buy homes right now even though mortgage interest rates are significantly lower than when Baby Boomers were house shopping.
To over 4.7 million viewers so far, Smith explained that the combination of skyrocketing house prices combined with stagnating pay have resulted in mortgage payments accessible to only a precious few folks of the younger generations.
And those Millennials and Generation Z adults who can buy homes are very often lucky enough to have been born into money.
“Any time a Millennial is trying to explain this to a Boomer, they use the same example,” says Smith in response to a comment. “They go, ‘Well, my interest rates were 15 percent, you have six and a half, you’re so lucky.’ Well, let’s look at it this way.”
“If you bought a house for $80,000 back in the ’80s, a 20% down payment would be $16,000, and the average person was making around $30,000 back then. So your down payment was just half your yearly salary. And then the loan you would have on it would be about $60,000. So in order to pay off the $60,000, if you really wanted to, it’s just two years of your salary, and you could have your house paid off.”
Smith is a little bit off on his yearly earnings estimate for the 80s, which went from around $21,000 early in the decade to $28,000 by 1989, according to U.S. census data. And of course, most people had to pay for other things aside from just the mortgage and of course interest accrued continuously, so no one could pay off that amount in two years at that salary. However, overall, his point is well-made.
“Well, let’s fast-forward to 2023, and I live in Orlando, so I’ll use this as an example. A $400,000 house with 20 percent down would cost $80,000 just as the down payment. The average person makes $50,000, so it’s almost twice their yearly salary just for the down payment. Then they’ve got a $320,000 loan left that they have to look at. That’s nearly seven times their salary to pay off the loan regardless.”
Additionally, Smith points out that there’s a huge different between saving $16,000 and saving $80,000, which is true even when you adjust for inflation, and especially considering the fact that pay rates haven’t risen much while cost of living absolutely has. He sees this in action as a realtor as people struggle to put more than a small percentage down for a house today.
“It is incredibly rare that people are putting 20 percent down. People are putting three to five percent down, which, with the six percent interest rate, is still shooting the mortgage through the roof. The payments on these homes are $3,300 to $3,500 a month on an average, simple three-bed, two-bath home.”
Then add in the fact that in some areas, the average price for a house is double or more that of his example for Orlando.
The result is that Smith rarely sees people younger than 50 looking to buy a home, and the only Zoomers he’s come across in his business were having their parents pay for it.
It’s bizarre that some Boomers still need to be convinced that it’s so much harder to buy a house today — if it weren’t, Millennials would be buying. Nobody wants to flush their paycheck down the toilet into a landlord’s money tank every month rather than working toward owning a home and building equity, but we do it because we have no other choice.
“This has been the most frustrating experience of my adult life as a 33yr old making 105k annually,” wrote one commenter. “Hopefully can get in a home next year.”
“Parents bought their house for $350k in 2012,” another pointed out. “It’s now worth $800k. My mistake was being in high school not buying property in 2012.”