It's A Terrible Time To Buy An Expensive House

Discussions about "rent vs buy", and the corollary of "mortgage vs cash", rarely address the problem of you MUST make that payment every month. Pay up or lose it.

The notion of paying every month, pretty much for life, is deeply ingrained in society to the point of not renting/mortgaging seems downright weird. (It's kinda like the recurring threads where living on $1/meal is met with outrage by most, despite many doing so with great satisfaction.) Few start out with a primary goal being owning home & property outright ASAP. This normalizes the dependency factor, reinforcing a social dynamic where people can't take long vacations or high risks, and live in fear of financial devastation from sudden unemployment or disability, precisely because that massive monthly payment ever looms.

The normalization of rent/mortgage also means social expectation of costlier dwellings. Where our culture(s) were satisfied by much humbler abodes a few decades ago, we've now grown to expect vast variants on the McMansion theme as a minimum - shocked at any suggestion that buying a brick shoebox (which our [grand]parents were content with) outright might be financially sensible. I expect downvotes based on "you can't expect anyone to live in that! cash purchase of real estate is absurd unless you're rich!" Well yeah, if you insist on buying multi-thousand-square-foot floorspace in quasi-urban settings with lots of options, sure it's gonna cost ... but you can choose to live somewhere less expensive, in a smaller space, and own outright much sooner - giving you the freedom to take a sabbatical, or risk investments, or not worry about layoffs.

In retrospect, and stuck with a large mortgage (bought at the peak), I strongly suggest anyone entering the housing market focus on hoarding cash until they can buy something, anything, outright. The freedom full ownership bestows is remarkable. Pity society sneers at it.

>Your landlord may elect not to offer a lease renewal.

Funny you say that: I'm strongly considering buying, and my landlord elected to not offer a "heat pump renewal" when the A/C went out. Hello window units, goodbye rental hell. Rental markets are not all alike, and this one's not too healthy.

It's been said a few times in this thread, but you have to remember to make this calculation on equivalent properties. In a perfectly functioning market, there'd be no difference between "rental" inventory and "owner-occupied" inventory, but in practice there are often qualitative differences between the two, and if you value certain characteristics you will likely have to buy.

EDIT: Also, don't forget to change the "marginal tax rate" option under "Advanced Settings...Other..." Mortgage interest deductibility is (rightly or, as I think, wrongly) a substantial ownership subsidy, particularly for high-earners.

This looks like the same set of points Patrick has been making since before the bubble burst. They're all great rules of thumb. And all bubbles pop eventually, but the problem is that it's very hard to predict exactly what pops them and when it will happen.

So in retrospect, it would have been a terrific idea to buy a house in SF in mid-2009 and then sell it now. But if you followed Patrick's advice, there's no way you would even consider doing so. And bluntly, if you're a hacker, you probably should follow Patrick's advice. SF is the land of perma-renters.

Paying too much rent now and moving when the current bubble pops and/or sticking around long enough for the Ellis Act to make your apartment a bargain both seem like better strategies than speculating to me. Focus on what you're good at to pay the rent in the short term.

It's the people whose brains are wired into local and national real estate markets who stand a decent chance of knowing when to buy or sell, many, not all, of them realtors. Now if you can give people a better finger on the pulse of this market, go for it. Zillow, Trulia, and Redfin need not apply - their attempts at property valuations are wacko.

> CalculatedRisk changed his opinion as the facts changed (he is data-driven, and one of the best blogs out there).

I should have emphasized this point myself. Also, the CR comment board used to be of HN quality, but for economics and housing. (Lately, not so much.) If you follow one econ blog, I'd heartily recommend CR: http://www.calculatedriskblog.com/

I will note though for the topic at hand: CR has commented that there is little correlation between interest rates and house prices[1]. I believe he has neglected that most of the data from which that statement is derived had interest rates (and borrowing standards) out of range compared to where we are now.

[1] http://www.calculatedriskblog.com/2013/06/house-prices-and-m...