I've come to terms with the fact that unless I win the startup lottery (or there's another 2007-2008 crash), I'll probably never be able to afford a house in California.
If your parents had put that same money in the stock market, they would have made something like a 7% return and have well over $1.4mm — or possibly much, much more depending on the exact timing.
They could easily have afforded $3,000/mo or more of rent (in the 2007 market) — assuming they financed the house — and still come out well ahead. Especially when you throw in insurance, maintenance, etc.
Let's say it cost $1M with $100k money down, interest-only loan. You get the 1.5% on the $1M, not on the $100k.
So if you measure it like that you get $15000 interest on $100k, so in reality this is a 15% per year return, not a 1.5% return.
Works the same in reverse when house prices go down, of course.