22 ms·

I liked the visualization and data, but I don't think it makes sense to compare home prices to wages w/o considering alternatives to home ownership. Home prices

• sbenitoj 9y ago
  You also have to factor in the opportunity cost of what you could've done with that down payment (e.g. What would a $100k downpayment invested for 30 years in the stock market be worth vs how much is that worth in your home in 30 years?) The NYT has a buy vs rent calculator that helps make some of these decisions: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0 https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
  • rconti 9y ago
    And of course the NYTimes calculator also factors in home prices appreciation. This is not really academic; it's fairly important. In cheaper housing markets with limited growth, it might be cheaper to rent because the expected cost of a major repair (and return on that investment) are both so low. Of course, you can't ever recognize the value of your house unless you sell it and move somewhere cheaper (or buy a 2nd house and rent out the first one, but that's just another side of the same coin).
    • shados 9y ago
      Reverse mortgages are an option too, especially around retirement. I didn't do too much research and I'm sure on paper it's a scam, but with no kids and no one to really give the house to beyond charity when my wife and I kick the bucket, I am considering making my place part of my retirement plan. Or just sell it to pay rent for the rest of your life. Either way it's a pretty big boon.
      • ianai 9y ago
        Not really. End of life care can drag on and is expensive. Even if you're really lucky and net $1 million from your house a single illness could wipe that out quickly. Retirement homes cost much more than comparable rent/mortgages.
        • slg 9y ago
          Those things can be mitigated with some smart financial planning. You can take your lump sum and buy an annuity and use those annuity payments for health and long term care insurance. I would also add long term care insurance is doubly important for the grandparent commenter who doesn't have children who could help care or support them if something goes wrong.
          • DesiLurker 9y ago
            Annuities are mostly scams with so many knobs & levers that are designed to get unsavvy people on hook with weird mix of investment and insurance. best to keep them separate.
        • tehlike 9y ago
          Consider moving to a cheaper country.
        • mikeyouse 9y ago
          Old people have Medicare, they're almost completely insulated from healthcare costs.
  • deleted 9y ago
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  • Retric 9y ago
    The real opportunity cost is not living somewhere else. Run the math and SF is best avoided.
    • surfmike 9y ago
      Depends of course. Despite the high cost, many live here because their salary is multiple times higher than they could get elsewhere.
      • chaostheory 9y ago
        It's not just the salary. It's also the opportunities to do things as in for the SF Bay Area we can go to wine country one weekend, go snow boarding another, sail, surf, hike; there's a lot of stuff to do here. I'm sure people can say the same for the NY metro and other similar places. I've lived in cheaper but boring places. The financial tradeoff is fair.
        • seanp2k2 9y ago
          Vs NYC there's also Tahoe, the ocean is surfable, there are beaches, it doesn't smell like trash everywhere, the climate is less extreme (less hot humid in the summer no snow), more access to fresh local produce more of the year, etc etc. It's not like rent in Manhattan is cheap, and you'd likely make less in NYC vs SF unless you work in finance.
          • chaostheory 9y ago
            I probably should have been more specific. People like NYC for different reasons, like the nightlife / club scene where the SF Bay Area doesn't compare at all. There's also culture that you wouldn't find outside NYC like the fashion industry and even art. That said NYC isn't for me either but it is for a lot of people, which is why people endure finance to stay there. Since we're on the subject, LA is another comparable place but not similar place. My point is that you can't these qualities in the boonies and that's why it's expensive to live in these places.
  • c22 9y ago
    Everyone I know in my age group with a house got help with their down payment from parents. Either in the form of low/no interest casual loans or just substantial gifts. It's possible this money wouldn't have been available to them for speculation in the stock market.
    • CoryG89 9y ago
      Some of us don't have parents who have more money than we do.
      • c22 9y ago
        Neither do all of my friends. All that's required is having parents that want to help you get a house. For instance my girlfriend makes twice the money her parents ever did. She still couldn't have afforded the full down payment on her house without a 4% loan from her mother as they were entering retirement. This arrangement ends up being beneficial to all parties.
        • bryondowd 9y ago
          I wonder how common even that much help is. That would be completely unthinkable to anyone in my circle. I personally send about $400 per month on average to help my mother make ends meet. I'm certainly not going to be getting a several thousand dollar loan from anyone in my family. For reference, this is in southern New Jersey and I'm on the older end of the millennials.
    • wbl 9y ago
      Speculation or saving for retirement.
      • Lillian656 9y ago
        Marcus answered I am inspired that anyone can earn $7391 in 4 weeks on the internet . http://www.bosscyber.com http://www.bosscyber.com
    • 9y ago
  • scottLobster 9y ago
    Another factor would be the opportunity cost of moving. With an apartment you're free as soon as the lease is up. With a house, even if you get a job across the country the mortgage must be paid. The time investment alone in preparing a house for sale/selling it is nothing to scoff at.
  • dlwdlw 9y ago
    There's also leverage. Banks are willing to loan you a million dollars to buy a house but not for investing in the stock market. (Barring catastrophe, over 30 years, there are usually gains.)
• cassieramen 9y ago
  I think he was pointing out how out of reach buying is. I'm sure a lot of people would like to own that are renting in SF right now but that's just not possible. "Having a roof of your head" and home ownership is very different, offering different benefits. For someone with kids, who probably does not want to be moving, renting is a bad option but the only one in a lot of markets.
• jankotek 9y ago
  There are more alternatives: work remotely, live in cubicle under table, live in a car...
  • 20after4 9y ago
    What I do: Land a Silicon Valley tech job but work remotely from the Midwest. I make almost double the median income for my area and I live in the white zone. My employer can pay me 60-70% of the salary they would pay for someone in San Francisco to do my job and I still earn way above median for my area. I could buy a really decent home here (Southern Missouri) for somewhere between 0.5 to 1.5 times my yearly salary. There are many factors affecting that price but there are some really decent houses at the low end of the price range. Extra bonus: property tax, income tax and sales tax are all relatively low. Unfortunately that doesn't apply to the entire region; some neighboring counties have ~8x higher property tax than where I live.
    • danans 9y ago
      > I live in the white zone What is the white zone?
      • psyc 9y ago
        It's the areas on the map in the article where prices are average.
        • danans 9y ago
          Oh, I thought it was referring to some kind of planning zone (and not, as some might have misread my question, as a racial zone).
  • lbotos 9y ago
    I mean also roommates, the classic way to cut costs. I think it's interesting because most New Yorkers I know have roommates into their 30s, 90% all of my SF friends don't.
• JKCalhoun 9y ago
  He mentions a county in Texas as the most affordable — and yet Texas has relatively high property taxes (higher than California). So there's that. And the more expensive homes will also be an income tap when you retire and sell the house (hint: anyone in the magenta can retire, sell and live out their lives anywhere in the green).
  • cestith 9y ago
    Texas also has no state income tax, though. And property taxes are based on the value of the home, so lower values means lower property taxes.
    • Joof 9y ago
      My understanding is that state income tax can be deducted from federal income tax. Retirement income is usually pretty low as well.
      • cestith 9y ago
        Very few things are directly deductible from federal income tax. Most deductions are from the taxable income. So if you pay X in state income taxes, you'd deduct X from your overall federally taxed income. You end up only saving your federal tax rate times X, not X in federal taxes. So if you're taxed at 13% state and 35% federally, you'd pay 13% to the state. Then you'd still pay (barring other deductions) your federal taxes on 87% of your income. Federal taxes don't work as a bare percentage, though. You pay a lower percentage on everything up to some number, then progressively higher percentages on brackets of your income up to your maximum tax rate. https://taxfoundation.org/2017-tax-brackets/ https://taxfoundation.org/2017-tax-brackets/
    • nwah1 9y ago
      And land values are based on expected net income attainable from the location (whether imputed rent or actual rent). Higher property taxes thus reduce land values, making homes more affordable upfront.
  • 9y ago
• shostack 9y ago
  Often missing from discussions of lower CoL areas is risk from different job markets. This is harder to factor in, but since not everyone can work remotely, you need to consider job market liquidity. If there is a recession can you easily find another job? Do you have a decent selection of local employers to ensure sufficient competition in terms of wages and benefits? Etc. Living in a high CoL area seems to correlate with a healthier job market.
  • austincheney 9y ago
    The best bet for low risk, high employment, and CoL - https://en.wikipedia.org/wiki/Plano%2C_Texas#Economy https://en.wikipedia.org/wiki/Plano%2C_Texas#Economy It costs much more than where I live, but it is still incredibly cheap compared to west coast.
  • vecinu 9y ago
    I'm not sure how true this is. My coworkers mention that during the 2007/2008 recession in SF they saw all of their coworkers/friends laid off and leave the Bay Area. It took one of my coworkers a whole year to find another job during that period, even though he was in a high CoL area and initially had a "great selection" of jobs.
    • rconti 9y ago
      I don't know a single person that lost a job in 2007/2008. Everyone just hunkered down. Stopped job hunting, employers stopped hiring, everyone just stayed quiet. Now, I know my anecdote doesn't mean much, because supposedly unemployment went up. Traffic certainly got better. But my point is, the anecdotes aren't worth a ton. I'm not making mine up -- I'm dead serious. Nobody I know got laid off, nobody I know left the area. I also know far more people who have moved TO California than out of it, and the only people I know who moved out were a couple of people in the past 3 years.
• throwaway688 9y ago
  You can sublet and pay people in cash for a lot less than the official renting price. This is particularly true in places with high real estate prices like LA, NY, NJ and SF where there is rent control. Thus it incentivizes long-term tenants to sublet for a sub-market price. You can't really buy a house in such a fashion though.
  • Cerium 9y ago
    FYI, mortgage qualification needs a years rent payment proof, ideally in form of bank transfer or bank check entries. If you pay cash and want a house soon, make sure to get written recites for those cash payments.
• pmorici 9y ago
  I don't think the point of this was to compare rent vs buy. It was to give information for people who want to own a home where the cheapest place to do so is.
• technion 9y ago
  A lot of these calculators seem to miss changing costs to. Ten years ago, I rented a small apartment for $350 per week. Now a literally identical apartment, 20km further from the CBD is going for $600 per week of rent. (I'm not in the US). Mortgages don't consistently go up in a way that meets these sorts of increases.
• gozur88 9y ago
  >That is, if a home is 10x the median salary, you can't really say "well, if I didn't buy a home I could work 10 years less." Yes, but what you can say is "If I move to this other place I can work ten fewer years for my house even if I make less money."
• Spooky23 9y ago
  A lot of these places are so insane, that insane places like New York look like values by comparison. My taxes are 75% of my mortgage, but it's still worth 1/3 the salary to pay 1/7 the cost vs living in The Bay Area.
• jaranha 9y ago
  The visualizations were great and I think his point was to drive home how long it would take to own a home in the optimal case. In reality you should take his metric and multiply it times 6 or 7 minimally. You're still going to have to pay at least the sale price of the house if you intend to own it free and clear. Also, since banks in the US don't create mortgages for longer than a 40-year term (I believe that's the max), if your value in his metric is greater than 5, and using my 6-7 multiplier, then you're never going to own a home in that location. That being said, a better metric might be the time to save up for a down payment that brings the mortgage and fees into a reasonable range for your salary. However, that calculation is much more complicated. Edit: I live in SF and I accept that I will never own a home free and clear here, unless I get exceptionally lucky. My plan is to get a mortgage in SF and eventually sell the place and use the equity to buy in a more affordable market.
• dahart 9y ago
  > So sure, a mortgage in SF is $6k/mo. But rent might be $6k/mo as well -- and you don't earn any equity or tax write-offs while renting. When you rent, your money is gone. When you buy, you normally get most or all of it back later. There's barely any economic comparison between renting and ownership. The tax write offs is the one of the least of your concerns. People go completely and absolutely nuts when they end up "underwater" with mortgages, which means the sale price of the house at some point becomes less than what you bought it for, or worse, less than the remainder of what you owe. It's an utter and total disaster if you can only get back 80% of what you paid. And yet nobody blinks an eye about sending 100% of their money down the rental drain. With ownership, you add to the value/legacy that you can pass to your family when you die. As a renter, you add nothing. When renting, people often get priced out of their apartments, or evicted for circumstances beyond their control. With ownership, the sale price is once, and generally only rare major disasters can push you out. The risks to renting are greater than the risks for home ownership. These things are why it's so incredibly important that home ownership is affordable across the country. If it goes out of reach, we will have a huge economic problem with large consequences.
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  • astura 9y ago
    When I sell my house I'm not getting back all my property taxes paid, interest paid, closing costs, inspection cost, realtor commission, insurance payments, and routine maintenance costs.
    • rsync 9y ago
      "When I sell my house I'm not getting back all my property taxes paid, interest paid ..." Perhaps not - but you are deducting those from your taxes the entire time. I have no comment to make about the appropriateness of the mortgage interest tax deduction. It exists and should be factored into your economic models.
    • dahart 9y ago
      Interest is a good point. But taxes are in the noise where I live, as is all the rest of your list. Either way, we could debate a whole bunch of minor costs, and it's obviously not the same for everyone. But that would be missing the point completely. If you sell your 500k house for a very very bad return of 125k, you will be 125k ahead of where a renter is. Renting returns nothing. Whether or not I get back 100% of what I put in, the point is when you rent you get nothing back.