5 ms·

This is a fun game in many domains. I have friends in Vancouver who have benefited greatly from the housing boom there. I encourage them to answer the question,

This is a fun game in many domains. I have friends in Vancouver who have benefited greatly from the housing boom there. I encourage them to answer the question, "If I had 1.5 million dollars, would I spend every penny of it on a 1000 sq/ft house in Vancouver?" Probably not; yet, they hang on.

sanderjd 10y ago
This is not the same - if you sell your house you have to buy a new one or rent, and unless you're willing to move, you will be paying just as exorbitantly as the person who bought from you. Most people aren't willing to uproot their entire lives just to make a buck on their inflated house price.
- graeme 10y ago
  No, this is not a good comparison. The price rental calculators tend to show renting is the correct option in Vancouver. If it's paid off, it's perhaps fine. But many people owe mortgages on those houses. They will be in for a world of hurt if house prices drop. I.e. The exact scenario we are discussing here.
  - sgt101 10y ago
    Rental can be a good move, but as a rational decision it should include the possibility of future price increases. Buying does this, you have covered yourself against all future increases, and accepted the risk of all future decreases. That is smart if you are committed to a location for non rational reasons like your kids are happy at school or you like it. Agree that holding mortgages that expose you to negative equity risk is a big gamble. Like stocks (real stocks, not options or non-listed equity) it's actually a good gamble if you will be able to cover a 5 year price dip. If you are likely to have to do a distressed sale at a stress point you are setting up a big loss - smart to take the risk if you are in your early 20's (the upside is great, you'll be ok if you bust) but dumb if you are >45.
- dionidium 10y ago
  >Most people aren't willing to uproot their entire lives just to make a buck on their inflated house price. What I'm suggesting is that that's the irrational part. They should be thinking about this decision as though it's an offer of a million dollars to move to Austin, TX (because it is).
  - sanderjd 10y ago
    Interesting! But it isn't obviously irrational to decide to turn down an offer to move for a million dollars. If your stated priorities are to accumulate as much wealth as possible, then it might be irrational to not move, but there are other sets of priorities for which that is not the case. I would definitely take a $1M offer to move to Austin right now, but I also wouldn't want to indefinitely run my life based on real estate arbitrage opportunities, and that isn't irrational, it's just prioritizing some things above wealth.
ChuckMcM 10y ago
In California there is also the reset in your tax base. So if you sell your house and buy a new one[1] it resets your tax base to the new price. Now renting out your house and buying a new one is a different strategy entirely. [1] Yes some counties will allow you to "keep" your prop 13 tax rate one time.
- muzz 10y ago
  True but you lose your Sec 121 exclusion for the years you rent it out.

sanderjd 10y ago

This is not the same - if you sell your house you have to buy a new one or rent, and unless you're willing to move, you will be paying just as exorbitantly as the person who bought from you. Most people aren't willing to uproot their entire lives just to make a buck on their inflated house price.

graeme 10y ago
No, this is not a good comparison. The price rental calculators tend to show renting is the correct option in Vancouver. If it's paid off, it's perhaps fine. But many people owe mortgages on those houses. They will be in for a world of hurt if house prices drop. I.e. The exact scenario we are discussing here.
- sgt101 10y ago
  Rental can be a good move, but as a rational decision it should include the possibility of future price increases. Buying does this, you have covered yourself against all future increases, and accepted the risk of all future decreases. That is smart if you are committed to a location for non rational reasons like your kids are happy at school or you like it. Agree that holding mortgages that expose you to negative equity risk is a big gamble. Like stocks (real stocks, not options or non-listed equity) it's actually a good gamble if you will be able to cover a 5 year price dip. If you are likely to have to do a distressed sale at a stress point you are setting up a big loss - smart to take the risk if you are in your early 20's (the upside is great, you'll be ok if you bust) but dumb if you are >45.
dionidium 10y ago
>Most people aren't willing to uproot their entire lives just to make a buck on their inflated house price. What I'm suggesting is that that's the irrational part. They should be thinking about this decision as though it's an offer of a million dollars to move to Austin, TX (because it is).
- sanderjd 10y ago
  Interesting! But it isn't obviously irrational to decide to turn down an offer to move for a million dollars. If your stated priorities are to accumulate as much wealth as possible, then it might be irrational to not move, but there are other sets of priorities for which that is not the case. I would definitely take a $1M offer to move to Austin right now, but I also wouldn't want to indefinitely run my life based on real estate arbitrage opportunities, and that isn't irrational, it's just prioritizing some things above wealth.

ChuckMcM 10y ago

In California there is also the reset in your tax base. So if you sell your house and buy a new one[1] it resets your tax base to the new price. Now renting out your house and buying a new one is a different strategy entirely. [1] Yes some counties will allow you to "keep" your prop 13 tax rate one time.

muzz 10y ago
True but you lose your Sec 121 exclusion for the years you rent it out.