House prices and interest rates: Did boomers, gen X or millennials have it easier

How often have you heard someone say "geez, I wish I'd bought a house back then when the prices were cheaper"?

In 1984 the average home cost was $64,039, the average annual income was $19,188 and the average mortgage was $42,277, data from financial comparison site Finder shows.

In 2022 it was very different - the average home cost $920,100, average incomes had risen to $90,896, and the average mortgage was $618,722.

Put simply, in 1984 the average Aussie could buy a home that cost 3.3 times their yearly income. By 2022, it jumped to 10 times what the average person earns in a year.

In late 1984, variable interest rates were 11.5 per cent, by January 1990 they'd reached 17.5 per cent, RBA data shows.

Now, the average variable interest rate for loans is around five per cent.

This week Australian borrowers were hit with a record ninth cash rate rise in a row. RateCity said this means an extra $908 a month in repayments for the average borrower with a $500,000 loan since the RBA's rate hikes began in May.

For a $750,000 loan, the latest rate increase will mean an extra $114 a month or $1362 since the start of the cycles of rises.

We spoke to three experts to see if it really was easier in our parents and grandparents' day, and, did boomers really have it the easiest?

Affording a home was a lot more difficult in the late 1980s than it is now, Centre for Independent Studies chief economist Peter Tulip said.

"Interest payments on a new home represent 38 per cent of the average wage now, in 1989 they constituted 64 per cent," he said. "That's interest payable on a new loan."

While house prices are many times more than the average annual wage now compared to the 1980s, Mr Tulip said this has been offset by the very low interest rates.

"The interest burden [share of income] on a new house was higher in 1989 than it is now," he said. "Current home buyers have it easier than their parents or grandparents had back in 1989."

While not keen to pinpoint which generation had it hardest, as it's comparing data at one point in time rather than a generation, he said it's easier to service a loan now than it was in 1989 due to lower interest rates.

"The deposit is the real obstacle now to getting a home, whereas for our parents and grandparents the interest burden was the big obstacle," Mr Tulip said.

Who had it easiest when it comes to mortgages comes down to a few factors, Grattan Institute economic policy program senior associate Joey Moloney said.

Today's generation "unequivocally" have it the toughest when it comes to a deposit of the decoupling between house prices and wages. It takes much longer to accumulate a deposit.

For those with a mortgage - it was hardest for baby boomers as a first home buyer to service that mortgage.

"Even though they were borrowing much smaller amounts than today's borrowers, around 1989-91 interest rates were hitting 17-plus per cent. That means at the top of the mortgage, once you start repaying it, your mortgage burden - how much your mortgage was taking out of your income - was through the roof, above 40 per cent," Mr Moloney said.

"If I'm picturing [in] 1990 a young family trying to buy a home and trying to service a new mortgage at 17 per cent, I'm picturing a lot of hardship."

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Today's generation are borrowing larger sums, but interest rates are much lower - so, the mortgage burden is way lower.

During the life of a mortgage the mortgage burden for boomers fell dramatically due to falling interest rates.

"We expect millennials will spend more of their income paying off their mortgages for longer than the baby boomers," Mr Moloney said. "The current generation has it harder, on balance, because the long term effects of big loans is different [compared] to the high rates."

"A lot of these things are relative. Although the interest rates were high, the price of properties were low," Finance Brokers Association of Australia managing director Peter White said.

Around two-thirds (68 per cent) of Australian home loans originate through a mortgage broker, and in Mr White's early days in the industry (late 1980s) he was writing home loans in 18.5 per cent.

He said it's just as difficult to service a loan now as it was when interest rates were high in the late 1980s and early 90s.

"The percentage of debt to income is still pretty similar, they call it debt to service ratios," Mr White said.

"Our biggest problem at the moment is getting used to coming off such a low base for such a long period of time, that could never have been sustained. We're all dealing with the shock of interest rates having a six in front of them."

One major difference these days is the servicing margin your lender considers when you apply for a loan. In the 1980s it was no more than two per cent, these days it's around three per cent.

The servicing margin, or buffer rate, is the lender's assessment of your ability to pay back the loan at a higher rate. As an example if the interest rate is currently six per cent, you'll be assessed on your ability to pay it back at nine per cent.

"That's going to stifle marketplaces, people won't be able to get a loan," Mr White said.