Where do people get money to buy CA homes these days? Often, from mom and dad

Paying mortgage interest is like throwing money out of the window :-)

If you are doing a financial comparison, you need to make sure you compare buying a home vs. renting one. And you need to factor in increases in rent every year, vs. increasing property taxes on a home.

Where I'm from (midwest), a home gives you a lot more (and/or different) lifestyle than an apartment. For example, you typically have a garage where you can do your own auto repairs (hard to do that in an apartment parking lot), so you can save money there. And you have a yard and garden which a lot of people like (if you have pets, a yard makes midnight potty time easier). And you can store things such as a boat and/or camper on your property (unless you buy a home in a restrictive subdivision). Which opens up 3-day weekend camping / boating activities.

Drawbacks of a house vs. apartment rental are more permanence (harder to pick up and move), which leaves the possibility of being stuck with bad neighbors if you are unlucky. Or not able to move to chase jobs (if you are in an area with limited number of employers).

This Rent vs Buy calculator is a great resource that calculates most of the factors you can think about: https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

One thing that's hard to quantitatively compare is the availability of certain types of housing for rent or for sale. You can't buy a 1 or 2 bedroom apartment in many urban areas of the country, and it seems very hard to rent 20 acres with a house, a pond, and a horse pasture.

A big thing which isn't accounted for in any of the buy-rent calculators I've seen is bankruptcy protection. I get it for the New York Times because the exemption is very low in NY, but in Texas the homestead exemption is unlimited. If you have a 2 million dollar house and get sued into declaring bankruptcy for some reason, you still have a 2 million dollar house when you're done. For me, even having $100k outside of retirement accounts (which is also bankruptcy protected) makes me nervous because I could lose it all very quickly if I get sick, injured, or get into legal trouble.

I just bought in the Bay Area, and the primary motivator was to basically ensure I was not going to be priced out of the rental market and be forced to move, pull kids out of school, leave behind friends or career, etc. Or, in the case where the home market increased further, being priced out of being able to buy if/when it made sense.

A mortgage is (typically) a fixed monthly payment for 30 or 15 years. The fact the mortgage is a fixed payment provides protection from rental market volatility and also inflation. The main forward risk you have (beyond actually being able to pay the bill) is deflationary risk and changes in property tax policy that would increase your monthly costs to maintaining your ownership.

It's an investment only if you plan to sell (of course everyone would sell at the right price, so perhaps its an academic point.) But it's also a way to control risk.

I used to rent in Sunnyvale. After a few good years, the complex was sold and the new owners set about renovating the place. Contractors entered my home while I was at work, while I was asleep, while I was getting dressed, to install appliances I did not want or have space for. That's what drove me to buy.

Home ownership ought not to be a goal in itself, but it's much more than just a financial investment. It's about autonomy in your living space.

Nerdwallet has a rent vs buy calculator you can use. It still makes sense to buy in the Bay area if you can afford the payment. Break even is about 6 years on buy vs rent. 2 million dollar house with 20% down vs ~10-14k in rent for the equivalent.

There's a lot of missing knowledge for someone to make the decision that way. Eg: most people, even upper middle class, often don't know basic investing. I certainly didn't until my mid 30s. If I had known even as much as how t-bills worked or index fund investing, I'd have WAAAAAY more money than I have now.

The flip side is that a lot of people don't buy real estate for the monetary aspect. They want to (figuratively) be able to drill holes in their walls. To some people, that's priceless.

I agree with the home as an investment idea. As an investment, a home in a desirable place is much less risky than investing in the market. The chance of a home losing all its value, if insured properly, is virtually zero. I cannot say the same for investing in the market. People should consider both options and hopefully not put all their eggs in one basket if they have enough eggs to spread around. I think that's why many people prefer to invest in a home. Plus, you can live in it and maintain its value with time and work that anyone can do. Buying just because it's part of the American dream or because people think it'll return massive amounts on investment is probably a bad idea for most.

That article has lots of flaws:

1) It ignores the aspect of time. It is under the assumption you will only be buying for a single year. It doesn't take into account that you lock in your price (vs rents going up). You need to compare against the cost of rents 10+ years into the future vs the (current monthly mortgage + property taxes in the future).

2) It doesn't factor in the increase from equity from payments.

3) It doesn't factor in the leverage (20% down is 500% multiplier on any home price change). Comparing plain home appreciation to plain stock market is a strawman and disingenuous. I had family loan me the down payment so technically I put 0% down which makes my ROI infinity.

4) It doesn't factor in tax savings (mortgage interest is not included in the new $10K limit).

5) It doesn't factor in that principle payments increase over time, so you get more and more going towards equity in each payment. Compare that to rents going up over time.

With leverage of a 20% down payment and tax savings you're actually looking at a 30% ROI for something that is a low-risk conservative "investment". That simply doesn't exist in the stock market.

Buying a property on a mortgage is just buying a very highly leveraged asset. Any gains as well as losses in the asset value are multiplied several times.

Parents chipping in down payment is certainly more prevalent in Australia and Canada than in California.

I think you were extremely lucky to time the market correctly. It is impossible to know when it is the "Peak" or the "Bottom"

Headshot

This is a commmon misconception: there is no $15k gift limit. There is a $15k annual exclusion of gifts that do not need to be reported. If you want to gift more than that, you simply file a form and the excess about the annual exclusion counts against your lifetime exclusion. The lifetime exclusion in 2017 was $5.49M (if you're married it effectively doubles). Oh and as of 2018 it is now $11.18M thanks to the tax "reform" bill.

I sold my house in the bay area a year and half ago. Mine was bought by a young Indian family and funded by their parents who were both fancy doctors and 1+ million in liquid assets (asset proof was provided to me by the sellers as part of their initial offer).

I asked my realtor because I was very curious. Folks can also gift against a lifetime limit not just the yearly. There's just some extra forms the donor needs to file with the IRS but it is possible. The limit there is something like 5 million

if only these millennials drank 150 less lattes a day they'd be able to afford a downpayment on a place of their own in three years.

The median home price in SF is $1.6M. At median SWE salary in SF, the mortgage is >70% of your take-home pay assuming an improbably large 25% downpayment ($400k). More realistic assumptions put it at ~85% of take-home.

Perpetuating myths about lattes, (or avocado toast[1]) does nobody any good; they are not the reason homes are unaffordable. Homes are unaffordable due to insane zoning policy and Prop 13.

[1]: https://money.cnn.com/2017/05/15/news/millennials-home-buyin...