this post was submitted on 14 Nov 2024
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Housing Bubble 2: Return of the Ugly
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I couldn't make heads or tails of your link, maybe it doesn't work in my browser. Maybe you could fill it out with the info and take a screenshot?
I'm aware of how compound interest works, I used the link below to insert an investment of £17k over 55 years at 10.5%apr and still only got £4M, which I admit is nice but it's far off of £28M.
https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
This still requires that you have the £17k upfront which isn't required as I'm talking about buying a mortgage where you'd only need the deposit.
It's worth noting that the average wage in 1970 was £1,204, so it's not like the average man had 17k to invest anyway, it's the equivalent of having over half a million in investable cash today. (This also leads me to believe that my dad bought quite a while after 1970, because there's no way he would have been able to afford a mortgage that size back then).
Edit: I just asked my dad. He bought in 1981, the house was £18,300 and the deposit on that was £1,300. The average wage that year was £7,296.
Shit, you’re right! Correct number is about £5 million. Apparently missed final step and copied the percent (10.9^54^ ≈ 28e3). My bad.
But yeah even if he bought the house in 1979 at 20% equity and house appreciated that much, effective APY over 45 years would be 1.2%. To check: (2%*(6e5/17e3))^-45^
Anyway it’s just an illustration I’ve given to friends, especially fellow millennials who often mention how their parents’ or grandparents’ house multiplied in value as their motivation for pursuing a house instead of savings.
It’s to show that there’s a better way to save than home equity, because few of us were taught that stuff and it’s not as daunting as it seems. Long-short usually you want as little money tied up in home equity as possible, so when the typical down payments have risen to hundreds of thousands of pounds, it’s quite difficult to justify over renting and putting more into pension.