One person's necessity is another person's luxury. I was prudent: I turned down MIT because it was too expensive and took a full-tuition scholarship to a less prestigious school, and it hasn't hurt my career any... or has it? It might have been fun to have been living in a startup hub just before the web was born, back when PG was still a grad student...
It's also much easier to see, now that the bubble has burst, that $750k for a house is a bad move. It wasn't so clear back in 2002, when my friend was kicking himself for having refused to pay $350k for a house back in 1999 because he knew it was terribly overpriced (he was new to the Bay Area). In 2002 the equivalent house was selling for $450k. Such houses may have hit $700k before the bubble burst four years later.
(Fortunately, my friend stuck to his guns, perhaps with some help from the housing-bubble-related articles I sent him two years ago. He's still a renter. But remaining a renter was an extreme fringe position in 2004: No newspaper would tell you that buying was a bad idea (real estate agents buy ads!), so you had to find out from blogs, or by having older friends who had noticed the housing crash of the early 1990s, or by reading Malkiel or Charles Mackay. I'm proud of being numerate, but I can forgive most of society for being less numerate than I am.)
The funny thing about housing is it's still over priced in most places. Post bubble it's much cheaper to rent in most areas unless you are in the highest income tax bracket. And with the 30 year ROI which approximates inflation most investments are much better in the long term.
EX: 1.5k per month to rent vs. a 350k condo with 300$/month condo fees looks good until you add in property taxes (.7%), maintenance, and transaction costs.
Post bubble it's much cheaper to rent in most areas unless you are in the highest income tax bracket.
Yeah, that sure is funny, isn't it? It's almost as if "post-bubble" is the wrong word, the bubble is still in the process of deflating, and housing prices are likely to continue to fall for the next several years!
It's not realistic to directly compare rent with a 30 year mortgages because at the end of rent you have a house and at the end of renting you have nothing and your rent is going up every year while your house payment is constant.
IMO it's best to compare interest only loan on $1,589,000 to renting @ $5,000. So 6% a year = 7,945/month but that's pretax so it's closer to 5561.5. But to keep up with inflation it's reasonable for the home value to increase at ~2%/year and rent should also increase at that rate. But you need to add in ongoing costs like taxes etc. If you run the numbers renting and owning a home cost about the same over 15 years and investing the difference in value which is reasonable. The problem is you want to buy the house you want in 20 years so most people go for a larger house than they need today.
Note: Owning a home is risky but so is renting. When you rend you can randomly have increases of 20% per year or it stagnates for a while but with home ownership you’re stuck in that area so your job or other local issues become a much larger problem. Basically having an affordable mortgage in a good area is not bad as long as you don’t need to move.
One person's necessity is another person's luxury. I was prudent: I turned down MIT because it was too expensive and took a full-tuition scholarship to a less prestigious school, and it hasn't hurt my career any... or has it? It might have been fun to have been living in a startup hub just before the web was born, back when PG was still a grad student...
It's also much easier to see, now that the bubble has burst, that $750k for a house is a bad move. It wasn't so clear back in 2002, when my friend was kicking himself for having refused to pay $350k for a house back in 1999 because he knew it was terribly overpriced (he was new to the Bay Area). In 2002 the equivalent house was selling for $450k. Such houses may have hit $700k before the bubble burst four years later.
(Fortunately, my friend stuck to his guns, perhaps with some help from the housing-bubble-related articles I sent him two years ago. He's still a renter. But remaining a renter was an extreme fringe position in 2004: No newspaper would tell you that buying was a bad idea (real estate agents buy ads!), so you had to find out from blogs, or by having older friends who had noticed the housing crash of the early 1990s, or by reading Malkiel or Charles Mackay. I'm proud of being numerate, but I can forgive most of society for being less numerate than I am.)