Could you explain a bit more here? What counts as a change in DC's willingness? And, out of boom or bust, which aligns with which kind of DC policy?
There's maybe a small percentage of the population addicted to buying brands beyond what they could possibly use, but most people run out of the ability to buy a significant amount of stuff every year. I.e. even a thousand a month habit is insane to maintain and nothing compared to bad housing choices.
Also some goods are not at all cheap. Cars, clothes, shoes, hardware - you can spend as much as you like on these.
On the renting side, they only assume investing the money that isn't going to down payment/monthly mortgage payments, not investing the full value of the house.
My blog post here is just giving an argument that 2 of their parameters should be updated, then showing the result of that update.
1. Many small landlords are not very financially sophisticated and won't factor in all costs when setting rent prices. For example, maintenance costs are often treated as one-time events ("the water heater broke") and not something to build into the cost of owning the home. I have relatives like this, and they generally view the appreciation on the property as their profit.
2. It's not uncommon for "landlords" to be renting out part of the house they're still living in. In these cases the rent can be somewhat arbitrarily related to the cost of the mortgage.
3. More sophisticated landlords often still have to compete with rents set by (1) and (2). At least in some markets.
So, you have the landlord having mortgage costs, maintenance costs, insurance costs, and still wanting a profit. And you have the homeowner, having mortgage costs, maintenance costs, insurance costs, but getting to keep what would have been the landlord's profit.
So the GP still has a valid point.
Bake in the fact that many rented houses today were either purchased or refinanced with the historic-low interest rates of ~2021, and there is really just a time difference between someone with pre-existing capital to invest years ago that you didn't have.
That said the cash flow gets better over time as rents increase.
Part of this is captured by the Volatility Index mentioned
> Individual houses are 4x the volatility of a housing index, close to the same volatility as the stock market.
But it bears calling out explicitly. Economically depressed areas will have very poor growth relative to inflation. Economically prosperous, desirable, growing areas will, by definition, have an increasing population and a finite area to accommodate that population. NIMBYism exacerbates this effect by reducing supply of new homes.
If you pick a good location, buying a home is a fantastic purchase. It ties up that investment money in an asset that you can actually USE. You can improve it, make modifications and tweaks to your liking, which renters cannot. And often times these improvements result in positive net positive return.
You'll never get forced out because your landlord wants to sell.
You'll never have to deal with toxic landlords at all.
You'll get to deduct all that mortgage interest from your taxes (if you itemize).
And in California, your monthly payments will never rise YoY more than $MONTHLY_TAX * .02
Where I live, the highest source of inflation for me has been property taxes. It's almost as if my landlord wants me to sell.
Sell and let someone who can make better use of it (i.e. more readily stomach the property tax) take possession.
Calcified landed gentry just sitting on dirt that appreciates due to the efforts and investments of everyone around them is Bad, Actually.
What you're advocating for is treating potential club members better than current club members. It doesn't make that much sense.
If you really were advocating for sensible policies, you would be advocating for many many more multifamily dwellings and/or taxes being directly proportional to the cost of the infrastructure needed to support it--generally by linear feet of roadway taken instead of property square feet.
I agree that property square feet is a bad metric. The right way to do this is actually to tax based on the unimproved value of the land, which would in fact create many many more multifamily dwellings by virtue of increasing the carrying cost of land as the market demand for density increases.
What was that about the population growth from immigration supposedly improving our lives?
All of these increase the value of land. Why are you singling out immigration?
(I suspect I know what's special, but curious to hear your answer anyway)
I'm hesitant on buying because I have next to no certainty in my role. If I be a good little Business Man and make someone else filthy rich, have all the make-up beers, and show up on time: at-will employment is still a thing. I may still be forced out by circumstance.
Equity might make the hit softer, I don't know. I do know a rainy day fund will be useful.
Right, that's 'forced out' with extra steps :) I'm buying a home to live in (and if we're honest, die). Not employment. It may not even pay!
> unlikely
Hence the hesitation [for certainty]. This is half a statement about the market and half about my capacity for it. If I lost my job - the more likely case - I don't want this burden, too.
To your/OPs point: this can be an opportunity... but so is that fat down payment! Losing the position with savings/options: video games and burn-out recovery for the next three years. Comfortably trying on the next fad.
Without savings/options but a house/debt: panic, hot potato, and paperwork with a much more urgent job search.
btw I don't think getting rid of at will employment will change that. These cycles are so long they'll certainly find a way to get rid of you during a down cycle if they want to.
Say I buy somewhere affordable and am now officially remote. No longer conveniently in the same city as the office, but at home... truly elsewhere. The calculus has changed!
Then we get into fuzzier topics like AI use. It's absolutely not just about productivity. The non-minded gap between my peers and I shows that to be irrelevant. I sandbag, they grind. It's a wash. In the end, a weird litmus/loyalty test that I can't quite articulate.
The much bigger tax thing this article doesn't consider is the $250k/$500k single/married capital gains exemption on sale of primary residence.
Also: It's a leveraged investment for most people (mortgage). If you put in 20% and your house tripled in value over the last ten years (which is what happened in SF & Seattle afaict), you make an annualized return of 27% (for a whopping 1070% total, i.e. more than 10x), after accounting for your payments (with realtor fees the number is slightly less but not meaningfully). Meanwhile as a renter your rent would likely have at least doubled over the same period, doubling the size of the nonrecoupable leak in your financial hull.
That's 1070% as opposed to 224%, i.e. 10x vs. 2x in the S&P. This is the reality of what has happened over the past 10 years, by the way, I am not using hypotheticals. Do note that home values tripling in price over the last decade is not common, even among these expensive cities, you have to be looking at specific types of housing in "luxury" neighborhoods.
TL;DR: Location matters. A LOT.
What percentage of houses triples in value over 10 years? And home much are you spending in maintaining, insuring, and paying taxes in 10 years?
I think your point still stands but its not nearly as fabulous an investment as you are suggesting
Thanks.
> its not nearly as fabulous an investment as you are suggesting
In case it wasn't clear, I'm not trying to give investment advice (my comment is very focused on what happened, not what will happen). I am however, implying that a lot of people made bad financial decisions by misapprehending their situation and consuming the wrong "content". I believe many people can be spared significant regret if they double-check, disbelieve, or replace much of what they’re told by the internet.
People underappreciate how valuable access to leverage can be in terms of boosting returns from a home. Putting 5% down, claiming the interest on taxes, and keeping 100% of the price appreciation is a solid deal.
Furthermore, since they're a hard asset, homes generally scale with inflation and thus serve as a hedge.
My conclusion every time I've done this exercise is that you should only buy a house in the Bay if you have way more money than you know what to do with. The difference in opportunity cost is absolutely massive, on the order of half a million today-dollars or more for a 3-bedroom SFH. That's a huge price to pay for the "privileges" of homeownership.
I've explained this to people and been told I'm stupid and irrational. Another thing I saw was families moving from the. midwest to the bay area (to work for FAANG) and getting tons of pressure from their back-home families to buy a house, and then spend a miserable decade living in a Sunnyvale housing complex.
Our plan is to wait for kids to leave home, retire somewhat early and buy a modest house in an area with lower costs and a political climate I can tolerate.
The conflagration of Prop 13 and an unregulated influx of rich people from all over the US and the world ultra-gentrified the Bay Area beyond the small crust of billionaires and marginal millionaires and a sea of middle class-ish people. There were no meaningful, comprehensive supply or demand protections post Prop 13.
Selling depends on demographics, the economy, and immigration. I'm in New Zealand where a lot of workers emigrate, and NZ patches that issue up with immigration. I read about €1 houses in Italy and ¥1 houses in Japan and then watch "South Korea is over" https://m.youtube.com/watch?v=Ufmu1WD2TSk
Modelling risks is the hardest part of any investment calculation.
Edit: the future value matters, and we get highly misled by looking at our experiences of historical results (especially don't expect to get the same results as your parent's generation).
Personally, thinking of your house purely as an investment is undesirable. You want to live there joyfully and not have to worry about pleasing the next investors.
The non financial upsides and downsides of your own home are more important than the investment. There are significant upsides and massive downsides: they are hard to balance.
I've rented a lot so I know that too has its advantages and disadvantages.
There are large financial upsides and downsides of your own home too. Geared lending is fantastic and dangerous, domicile taxation issues, regulations, yearly government fees that can screw your retirement. You don't really own your home, you have a license that you can sell. A home is really just a glorified longterm tenancy with two bigger landlords (the bank and your government).
The calculators are useless if the data going into them is useless, but even if it perfectly reflected past national averages, that doesn't make it a great predictor of future local results. If you're buying a bunch of properties spread throughout the country and over time, it could be useful, but for individual choices it's probably not. Here's a great read on the uselessness of comparing a bunch of averages to individuals: https://www.goodreads.com/book/show/24186666-the-end-of-aver...
From a broad perspective, most investors don't rent property out at a loss, so in general it's going to be more expensive to rent, unless you own a property for a short enough amount of time that closing costs play a significant role. Even then, occupancy rates aren't 100%, so average rent needs to make up for that. On the other hand, the margins aren't super wide, so rent is still in the general ballpark of the price of ownership.
In the end, if you want to rent then rent, and if you want to own than own. The pricing difference isn't enough to make an uncomfortable living situation worthwhile. Do you prefer the control and long-term stability of owning your property over the effort it takes to manage it yourself? Then buy! Do you prefer the freedom of moving often and the convenience of someone else managing and maintaining your property over the ability to live somewhere indefinitely or chose how your residence is remodeled? Then rent!
I was under the impression that this was actually fairly common in places with rapid house price appreciation. Which includes a good portion of the places where people want to rent. The main source of profit for the landlord is the capital appreciation rather than the rent, so they're willing to rent at levels that wouldn't be profitable if they weren't also planning on profiting from the rising prices.
In theory it wouldn't have an effect on the rental market, but in practice cash buyers are much more likely to be corporate land owners, who tend to have higher margins than the casual investment property owner.
These broad numbers games feels like rationalizing a decision today. Maybe it’s true for a particular locale (I don’t live in the Bay Area), but these articles feel like they’re painting with too broad of a brush given I can’t maths out a negative for my situation.
reverendsteveii•6h ago
recursive•6h ago
reactordev•6h ago
centra_minded•6h ago
When you buy a home, you pay a down payment you counterfactually could have invested (and any difference in rent vs. mortgage can be invested). The article is just saying the calculators skew towards buying by underestimating investment growth and overestimating housing appreciation.