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Comment by lisper | Hacker News Reader

My wife and I live in the SF Bay area and we own our primary residence. I would love to see real estate prices collapse. Why? Because we would like to do a lateral move (i.e. sell our house and buy a different one in our area for about the same price) but right now it's too expensive. The price of both our house and the one we'd want to move to have both doubled since we bought ten years ago. If we moved today we would have to pay capital gains tax and our annual property tax would nearly double. If housing prices collapsed and went back to where they were when we bought we could make the move essentially for free.

That's the insidious thing about rising housing prices. In order to cash in on your gains you have to actually sell your house. But then you still have to live somewhere.

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FYI you would not have to pay cap gains on your primary residence. But yes, I feel the same way. I’m stuck in a starter house because I couldn’t easily get back in the market.

I thought the capital gains exclusion ended at 500k? Because if a house in SF doubled in value, the gain is likely more than that.

Yes, exactly right. We have considerably more than $500k in gains. It's a nice problem to have, but it's still a problem.

You just hit the nail on the head for why recessions and economic setbacks are a healthy part of a functioning society. It helps clear out some of the old for some of the new, and helps equalize some opportunities for some people.

You should double check the rules, and this is a pain in the ass and potentially problematic given that it will be harder to find a tenant during a pandemic, but if you rent for four years you should be able to do a 1031 exchange and avoid cap gains. You move out, and rent your existing home for at least 2 years, then do a 1031 for the new house, then rent that one for at least 2 years. If the old and new property are rented for at least 2 years, i believe there is a safe harbor that deems them investment properties for purposes of a 1031 exchange.

You still have the problem of much higher property taxes due to prop 13 though.

Appreciate the suggestion, but becoming a landlord is an investment decision, and like all investment decisions it comes with risks and opportunity costs. It's an orthogonal issue to the fact that moving is actually more expensive when real estate prices rise even if you are already an owner.

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