The boomer real estate story

The boomer real estate story isn't really about real estate.

Most boomers that are millionaires now where not that genius, they just happen to be in a property buying age in the best asset-buying window in modern history. Here's some facts of what that window actually looked like.

The macro did the work. The macro environment was extremely favorable, with low entry prices, falling rates, real wage growth, supply constraints, and four decades of inflation running in the background compressing debt while lifting values. Any asset held through that period would've looked like genius. But of course most people are not actual geniuses, and i believe that is not the story that should be told; even though the boomers like to tell it like that hehe.

Interest rates fell for 40 years straight.From 1980 to 2020, the benchmark rate dropped from roughly 18% to near zero. Every time rates dropped, mortgage costs fell. Real estate market-dynamics favors rate drops dramatically, because when rates fall, buyers can stretch further and values of properties are pushed up, the same logic is true today. When this happens across four uninterrupted decades, people who bought in that environment didn't just benefit from appreciation, they benefited from a structural tailwind that repriced every asset they held upward, for their entire adult lives.

Inflation ate their debt. They borrowed in 1985 money and repaid in 2005 money. While the mortgage stayed fixed, Inflation eroded the real value of what they owed while the asset on the other side of that equation kept climbing. This is one of the quietest and most significant wealth transfers in modern history, and it required just an asset backed mortgage and the ability to hold on.

A single income was enough. Wages in that era were still attached to productivity, which i would argue, it is not anymore. One salary could service a mortgage, cover living costs, and raise a family. People were not more disciplined or more financially savvy, but the ratio between income and asset prices looked different than that of today. Somewhere around the late 90s, that ratio started looking quite different, and has been widening since.

Taking London as an example, back in 1986 a 2-bedroom flat on average cost £55,000, and the salary was around £9,500, that's around 6x multiple, that means that with a 1.5 year salary to save, considering mortgage covers 4-4.5x, meaning a few years of financial discipline will get you there.

Today the same equation gives an 11x multiple, with the same 4.5x ceiling, it leaves around 6.5 years of full year salary to save for a deposit. Keep in mind this savings come after living costs, realistically stretches the period into decades. For a lot of people this is not just a slower pace, but structurally off the table without outside capital like inheritance, let alone doing this on a single income.

So why does this matter for us?

It does not matter to us really, its in the past, and we were not even born. But, the story we tell about boomers wealth shapes the conclusions we draw about our own options. If you believe they built wealth because they were disciplined, frugal, and made smart property decisions, then the logical conclusion is that you're failing because you're not those things, a framing that is both inaccurate and exhausting.

The more honest version is that any asset held through that window would've looked like a great decision. But if you ask them, they probably did not feel like that at the time. The risk of investing is always present, and they did not know that the future would hold those kind of returns. It is always easy to be smart looking back in time, but not as easy looking forward.

When we will be asking our grandkids in 50 years, they will probably be saying the same about us and our current conditions, maybe it will be for real estate, or maybe something else. No matter what, leverage on an appreciating asset is still how generational wealth gets built, on business, on assets, and on property. The compounding logic is identical, and us GenZs/millennials must try seeking out ways to leverage.

Right now, there is a $84 trillion wealth transfer from boomers to younger generations already in motion, so money is moving, and opportunities exists. So the question is never whether the game is still on, but if you understand it enough to play it under the conditions you have, and forget the ones that no longer exist.