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Comment by usaar333 | Hacker News Reader

I find it better to look at rentals than house prices, because house prices are being driven up by people who really, really want to own (due to few sellers). (More at https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...)

Your 1500 sq home probably would rent for about $4300 a month in Redwood City (https://www.zillow.com/redwood-city-ca/home-values/). That home would probably rent for about $1900 in Portland (https://www.zillow.com/portland-metro-or_r394998/home-values...)

A $30k/year rent difference requires ~$48k more income to cover (at 40% marginal tax rates). My guess is that the 100% salary jump is more than enough to cover the housing increase (probably handles all COL difference), making SF more favorable, especially if you don't want a very large home or are quite senior.

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Except then you're always at the mercy of a landlord who can raise your rental rates, and you won't be building any equity. There's no rent control on the Peninsula. I know people who have gotten a $600/month rent increase and been totally screwed. Whereas owners benefit from Prop 13 which is basically rent control for owners- their property taxes never go up.

Not building equity == ploughing piles of money into better investments than a house...

I agree and disagree. In most areas, I think it's true that other asset classes outperform real estate. One challenge in the Bay Area is that housing has been going up faster than non-housing investments. For example, I just checked the house next door to me on Trulia, and it's up 6X in 20 years. That's an almost 10% annual rate of return. So in fact if you don't own a house, you're probably falling even further behind from your house-owning peers. At least in this area.

So you're saying if you buy a house, you will be making incredible gains. If not, then you will be making gains at least as good as everywhere else. Sounds like win-win to me.

There are very few assets that return 10% annually for 20 years. It's impossible to know what will happen in the next 20 years, but owning a house in the Bay Area for the last few decades would have been a much better investment than paying a little less for rent and investing what's left over.

6x in 20years is lower return than stock shares in most of the employers that have been driving up housing prices (for obvious reasons -- those companies' growth are funding the housing price gains)

Not sure why you are being downvoted, but this is correct. The returns on VITAX far outperformed leveraged housing. (see 3rd final thought at https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...)

Besides, 10% is about the long-term S&P 500 average return.

Not to mention that by owning you have to pay property tax, which should be considered when comparing investment returns.

It is normally a Bad Idea to invest heavily in your employer due to the Putting All Your Eggs In One Basket principle. If anything happens, you lose your job and investments.

But you can’t live in your other investments.

You're under-stating the return. Unlike other investments you can leverage the house with a mortgage. Assuming you put only 20% down you're making 50%/year gains.

Except every year you are paying about 6% of the purchase price in principal and interest and property tax (plus maintenance and water), so the math isn't quite that simple.

But you are putting down only your savings in other investments , much lower amount.

However, the house is leveraged. At 20% down any gains in house equity represent five times the same percentage gain in an unleveraged investment. If you put 200k down on a 1m house and the house appreciates to 1.1m, then that 10% gain in equity is a 50% gain on what you actually invested. Of course losses will be magnified too.

There is rent control in East Palo Alto. However, every other city on the Peninsula does not have rent control.

Mountain View, too: https://www.mountainview.gov/depts/comdev/preservation/rents...

You are correct. Mountain View recently added rent control.

Relatively low interest rates (locked in for 30 years), tax deductible mortgage interest (some) and prop13 make ownership still economically beneficial even if you don't assume massive appreciation. This assumes you stay at least 5 years due to large transaction costs. Obviously you have expenses associated with ownership and some opportunity costs due to not investing the down payment but from all the math I've done if you want to stay and you can swing a 1.5M house it makes sense to buy.

> Relatively low interest rates (locked in for 30 years), tax deductible mortgage interest (some) and prop13 make ownership still economically beneficial even if you don't assume massive appreciation.

That's not true in many parts of the Bay Area. See linked post above: https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...

Good point, it certainly depends on how you do your model. Accurately predicting the housing market appreciation and your investment rate of return is challenging. Also, renting vs. buying have different risks (monetary and otherwise).

Interest is no longer tax deductible above 750K loan (1 million if grandfathered)

Rents are driven up by people who really, really want to rent.

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