haha, but what if it doesn't pop and we see something like Japan's economy from the early 90's on? High prices that never come down, combined with wage stagnation? We're kind of already seeing it now.
Ya it has to be. We have so many square miles of underutilized cheap land between the costs it's crazy. The federal government owns around 60-90% of the land in the western states too. If only there was a way to communicate without being face to face.
Yet for some reason tech giants insist on building more opulent, centralized megaoffices in unaffordable areas. Perhaps it is because they do not bear the brunt of these costs.
One reason is that the executives who make the decisions on office locations can easily afford to live nearby. And most of them prefer to live in fashionable areas.
As a thought experiment, imagine that you could rent a million dollar house for 1$/year. Then renting is obviously the smart thing to do. So rental yields are an important factor, as are your expectations of house price growth, opportunity costs etc.
But if rental yields are low (as they are now) and you do not expect house prices to rise at a fast rate in the future, renting can easily be the smart choice.
Regarding future house price increases. It seems to me that house prices can be approximated as a function of rents, interest rates (determining required return on owning a house), and anticipated growth in house prices (which again can be decomposed into growth in rents, reduction in interest rates and 'irrational' growth).
Using London as an example. Rental yields appear to be around 3.5% in London at the moment, which suggests to me that a good deal of anticipated growth is priced in. But where can that growth come from? Rents are a function of incomes and are unlikely to outpace inflation. Interest rates seem to be more likely to go up than down. So it seems that house prices are unlikely to rise, and once that is realized by the market, prices may even come down as participants stop anticipating growth just because "London house prices always go up".
House prices going up faster than rents in recent decades can probably be explained by interest rates being in a downward trend over the same decades. Now we seem to be in at least somewhat of a bubble due to irrational future growth expectations.
I'm general, when the price-to-rent ratio is too high. Last I heard San Francisco averages >30. It only makes sense (financially) to own if the price-to-rent ratio is under ~15. If you're an investor looking to become a landlord don't even consider buying a property if the price-to-rent ratio is greater than 8.
Its a smart choice in other situations too - like when you are intending to live somewhere on a temporary basis, for example. You would certainly be better off (again, financially!!) if you were renting a room for a couple hundred bucks a month if that allowed you to sock away $2,000 a month into your retirement funds. That's provided you have the ability to actually save/invest the extra money you have, a mortgage can act like a forced savings account for some people.
Its too late to edit this post, but I should be more clear that the parent post is a major generalization, your individual factors will vary if it makes sense (financially!) to rent vs buy for your primary residence. Price-to-rent ratio is a big factor, but not the only one. There's also a lot of luck and factors out of your control that contribute to if you make out ahead (financially!) either way. I just looked up the data on Zillow and the average P/R ratio in San Fran isn't as bad as I thought, but still extremely high.
Anyway, when you're talking about buying vs renting you're also heavily involving non-financial factors that are usually MUCH more important than financial factors (assuming you have some sort of a budget); so something might be a "smart choice" for an individual but not the most financially optimal one. Just like eating lentils and ramen noodles every day might be the most financially optimal choice but is probably not a "smart choice" for most people. In fact, if you have a family you probably aren't going to make the most financially optimal housing choice unless you absolutely have to.
A real world example:
I have friends who are renting a decent single family house with tons of land for an absurdly low price (family price!) and the landlord (family member) even pays utilities because it's just "easier" and she isn't trying to make a profit. Factoring in depreciation and amortized repair/upkeep costs the landlord is almost certainly subsidizing their housing costs. Financially, great deal! They will almost certainly never have a chance to have a full house that cheap ever again. Staying there as long as the landlord lets them is the most financially optimal choice. However, for a number of complicated (but understandable) reasons, my friends hate it and are planning to move whenever they have saved up more and paid down their loan balances.
There's a great writeup on this -- I may have even seen it here [1]. On average house prices tend to keep up with inflation and trail the market across the US. In specific markets that may not be true, then there's all your expenses. Ultimately, it depends on your personal situation if you should buy or rent, and the New York Times has a great calculator [2].
tl;dr: It's not always the smart choice to buy. Or to rent.
Spending your day commuting and living in a car dependent hell hole is smarter, just because you can retire a bit sooner? What alternative universe has HN transformed into?
As someone with a long train commute, my train time is basically my non-productive "me time". Read a book, read the internet, take a nap, program on fun, non-work projects. If I'm at home, I'm usually engaged in child-care or house-care of some flavor or another, with very little time for simple idleness.
To your last point: in NYC it's pretty easy to do things requiring "undisturbed attention" on a 45 minute express Metro North train into the city from the suburbs. It's a very different experience from the subway.
As for the other three, I guess I could say that I'm not sure it's realistic to try and budget your time so efficiently that a 30-45 minute commute is intolerable. Many people have commutes for which that's a margin of error on how long it will take them - that sounds like a real problem.
Aside from working from home full time, what kind of commute are you looking to have, and at what distance from work? It's not realistic for most people to achieve a 15 minute commute, so 30-45 in a train really isn't that bad. If it really matters then you could do things on the train that would normally keep you from your spouse or kids at home :)
My friend does the Go Train from Oshawa to Toronto every work day. She spends the time on the train either reading a book or watch a video of a show she is following.
On the way home she will sometimes watch a movie and finish it at home. Time on the train does not have to be work or a vegetable.
Just to add perspective here. Toronto anywhere proper, you have to get on a bus generally, to get to the station. Then you have to take the train south to Union. Then take the GO, East to Oshawa. The entire trip can be done in less than hour, but you are walking between connecting options for 10-15 minutes which limits your "free time."
The idea here is many people want a house and if you aren't DINKs then Oshawa was cheaper in housing a while ago. Now it's almost similar to Toronto cost and rent is nearing.
You can trivially get a 30 minute commute just within SF. I imagine other expensive cities are similar. Living within a few minutes of work is a real luxury for all but remote workers.
That’s 2+ hours per day of your life that you’re never getting back. You can always make more money, but time lost is gone forever.
How much is 2x5x52 = 520 hours worth to you?
If you’re selling your time for even just $100/hour that’s $52,000/year right there. With a 300k salary your hour is worth way more than $100. For your family, it’s priceless.
If you commute by train it’s not all necessarily wasted time. You can read, play games, listen to podcasts, etc.
I always read many more books when I commuted than when I didn’t commute. I find myself making new year’s resolutions to read more. But it was easy when I had the commute as a forcing function. (Not having internet on the subway probably helped...)
If you don’t think reading books is valuable enough to do when you aren’t commuting, is it really valuable to you? Or are you just doing the best you can to salvage a shitty situation?
Don’t forget to take transportation cost out of your $3000 per month.
I live across the street from the office and yes the rent is stupid, but my commute is a 5 minute walk.
And rent is still stupid in a 30min radius (for a total of 1h/day). You really have to go 1h+ radius to make a significant dent in rent around here (SF).
I did - $500 a month. I have no idea what communitng costs, and little idea about rent.
I have a 5 second commute from the bedroom to the office (3 minutes if I go downstairs and boil the kettle first), far easier. Monthly Mortgage is less than the weekly rent that one colleague pays in London, and he still has a 45 minute commute each way.
Sufficiently expensive that when I consider Silicon Valley jobs in my future, I also consider getting a pilot license and commuting by plane from the central valley.
Right now though, my 401k has been doing 15-18% for the last couple of years. My condo has been going up in value by about 13%/year, but I put 20% down and I think I'm at 30-35% equity, and my monthlies are cheaper than an equivalent rental.
The rent + invest vs buy + bank on property value debate is age old, and I won't restart it here, but so far, I'm not doing terrible.
