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Comment by nostrademons | Hacker News Reader

Why would you want to leverage up an investment whose expected returns are barely above inflation, though? It's a fairly good bet that the appreciation on your home will be less than the interest you're paying on your mortgage, which makes this a net loss. (Particularly now, right after home prices have seen the most spectacular run-up and bubble in nearly a century.)

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You'd do it because you expect that the return on this particular property at this particular time will be significantly above inflation.

I think this would be a reasonable bet in cities which have had particularly strong post-bubble deflation but which nonetheless have strong long-term growth prospects. If I had lots of spare money I think I'd be buying up five-figure houses in suburban Sacramento right now.

It's not just growth prospects, you're making a bet on the regulatory environment continuing to restrict the supply of homes. It may seem like California will never open up more land for housing, but it's not a law of nature.

Out of curiosity, why do you see Sac rebounding strongly?

Just a guess based on the vibe of the place -- it feels like a city which is going to continue to grow in population and importance, and it's come down a helluva long way since the peak of the boom. I could be wrong. If I had a really good reason for believing it then I'd be out there buying instead of talking about buying.

I'm only picking on Sacramento because I used to live there, there could be much better buying opportunities in cities I don't know so well.

It is possible that it will rise, but it seems to lack the NY/SF factors of limited supply (land) driving prices through the roof. In SF, there is only so much space, so the affluent can keep driving prices higher. Around Sac, there is plenty of farmland ripe for development.

(example: Austin, TX is a great place to live overall, but it remains cheap due to "endless" land).

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