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How did my parents get rich? Or, how did they do so well, and have it so easy, compared to my generation (X)?

Was everything easier, did everything fall into place for them?

What was the received wisdom from their parents that got them where they are now? There were some different truths. One of the most obvious was: buy your house and pay it off! If you are still working and your house is paid off, you can save, invest, and in fact, get rich. It is those years after the house is paid off that make such a difference.

But somewhere in the 1970s, things began to change, right around the time that the baby boomers began buying houses in larger numbers. As house values went up, second mortgages and lines of credit became more common.

This leads to a change in values, until now, it seems the main reason to buy a house is to see whether the value goes up - not to try to pay it off.

Large increases in house prices are justified as self sustaining. In fact, it is this asset appreciation which will provide for the baby boomers and all other home owners, during the golden years of their retirements. And as some of those baby boomers have paid off their houses, the current situation is just gravy for them. A windfall, of epic proportions, compared to the older but once valid idea that you could work and earn and sock away a lot for retirement, once your house was paid off.

Here is an interesting quote from an article in Time magagzine:

"It's the most fantastic thing I've seen in 25 years." Reports Connecticut Realtor Phyllis McGovern: "The momentum has been building for over a year, but I've never seen anything like the last three months." One reason for the market buoyancy is the increase in the number of young people—born in the postwar baby boom —who, seeking more space for their own young children, are now entering the market as first-time house buyers. But an equally important reason for the home-buying surge is a highly paradoxical one: rocketing housing inflation that threatens to turn the old joke "If you had to buy today the house you're living in, you couldn't afford it" into grim reality. Since 1970, according to a recent joint study by Harvard University and M.I.T., the price of new houses has climbed twice as fast as family incomes."

The date of publication? Monday, May. 02, 1977.

Here's a follow up report from just a couple years later, after the skyrocketing prices had left the realm of affordability. Did that unaffordable situation continue indefinitely? No, it did not, as was explained in another article in Time magazine, this one from June 14, 1982, detailing the foreclosure crisis of the time.

The evocative title of the article was Califoreclosure, and the author went on to note an interesting situation for a real estate agent: she was losing her house to a foreclosure. The agent said: "The situation became like a monster that kept growing."

The loan products that precipitated this crisis were different from the zero down, negative amortization type loans that have fuelled the sub-prime market south of the border, but they were assumed with the same premise - that an increase in home values would provide the means to repay the financing. In the case of the early 80s, the idea was to repay a baloon payment within 2-5 years after the origination of the loan, often by borrowing against the increased equity that would accompany a rise in home values. When values went down, this strategy went out the window, and foreclosures shot up.

Every boom carries with it the seeds of its own demise.

Even here in Victoria, a boom can't last forever. It would be wise for those who do not remember 1981 to not be too overconfident that it is different here, this time.