Hacker News Reader

Comment by beatpanda | Hacker News Reader

It is irrational to pay current Bay Area rents, especially if you plan on living here long-term. The only way to avoid eviction for sure is to buy, and that's going to cost you roughly half a million dollars at the low end. Better to minimize your expenses and ramp up to that than set half your paycheck on fire to pay the inflated rent.

View on HN

I'm living in the east bay, and was recently running calculations on home purchasing... Take a 30 year mortgage, calculate the total interest+property taxes paid over the 30 years, and divide by 30*12 to get the amount of money per month not going into equity. Turned out to be pretty close to my rent, in most cases.

It also turns out that the appreciation of housing in the US has been negligible up until the post-2000 housing boom. From the 1920's to 2000, the average increase in a house's value was 0.6% per year. So the part that isn't going to the bank is going into a possibly really poor savings fund. And one that can burn down... At this point, I'm thinking it probably still makes more sense to rent, and do the usual index fund thing.

> Turned out to be pretty close to my rent, in most cases.

Let's take this house: https://www.redfin.com/CA/Oakland/2822-Myrtle-St-94608/home/...

Property taxes according to Redfin are $2,471 a year, for a total cost of $74,130. A thirty-year mortgage at 4.5% interest will see you paying $350,229 in interest over 30 years.

Together, that's $1,178 not going into equity.

Here's a Craigslist search for homes with 4 bedrooms or more in the same neighborhood:

http://sfbay.craigslist.org/search/eby/apa?nh=64&bedrooms=4

Note that there aren't any comparable places to rent, but even the ones that are close are more than double our "amount over equity per month" figure.

This also assumes your rent over 30 years is going to stay fixed the same way your mortgage payment is. It won't:

https://www.rentjungle.com/average-rent-in-oakland-rent-tren...

I couldn't find good data on housing appreciation for the Bay Area, but I'm going to go out on a limb and suggest it doesn't mirror the U.S. overall.

And either way, appreciation only matters if you're thinking of your home as an investment. Assuming you're thinking of it as a place to live, it makes sense both in pure cost terms and for some things that are harder to put a price on.

For instance -- how much is having a permanent address worth to you? Or the price of never having to move again, never having to sit in another group housing interview again, never being able to be evicted by "owner move in" or whatever shibboleth is currently popular in Bay Area eviction bootcamps? (this is a real thing: http://www.sfgate.com/bayarea/article/Lawyer-pumps-up-S-F-la...)

You're comparing a two bed room house (at the low end of what's available for price, I'll add) to four bedroom rentals. I'm currently in a shared four bedroom house with five people; together, my wife and I pay $1500/mo for rent. Sharing one of the cheaper 4br houses equally amongst four housemates gives $800/mo. So, meh.

We are planning to get things together to buy a house; the quick survey just convinced us that it didn't make sense to rush in. We also feel that there's a decent possibility that the housing prices actually are bubbly, which makes us less inclined to rush out and buy something. Overall, the exercise convinced us to wait a bit and get together enough to shoot for a 20yr mortgage.

Read the ad again, its a 4 bedroom house split into two units. And you just went from "it costs you just as much to rent as it does to buy" to "cutting my monthly payment in half isn't a strong enough motivator."

I stand by what I said -- renting is irrational. The kid in the box truck is smarter than every Bay Area software engineer blowing their money on rent.

The property tax is almost certainly off by a factor of 2. You will be paying 1% of the purchase price of your home to start out, as that's definitively the market value at time of purchase in an arms-length transaction.

Buying a house in the Bay Area is an investment that you should only do if you absolutely believe that there's not a technological bubble and that tech companies in the area will continue to pay the highest salaries in the world for the next 30 years.

Reply on news.ycombinator.com