I’m not really making a claim about momentum, I’m just skeptical of your basic analysis.
Real 30-year interest rates are ~1%, taxes are ~1%, and I think maintenance averages ~1%. So that’s ~3%/year total cost, which seems comparable to rent in areas like SF.
On top of that I think historical appreciation is around 1% (we should expect it to be somewhere between “no growth” and “land stays a constant fraction of GDP”). So that looks like buying should ballpark 10-30% cheaper if you ignore all the transaction costs, presumably because rent prices are factoring in a bunch of frictions. That sounds plausible enough to me, but in reality I expect this is a complicated mess that you can’t easily sort out in a short blog post and varies from area to area.
If you want to argue for “buying is usually a terrible idea, investors are idiots or speculators” I think you should be getting into the actual numbers.
The actual numbers are somewhat idiosyncratic but my main point is that in the process of investigating the numbers most people don’t evaluate downsides because they don’t occur to them. Once these costs are taken into account the marginal buyer will flip on the decision. In extremely hot markets you are much more likely to be like the marginal buyer rather than the average buyer.
I’m not really making a claim about momentum, I’m just skeptical of your basic analysis.
Real 30-year interest rates are ~1%, taxes are ~1%, and I think maintenance averages ~1%. So that’s ~3%/year total cost, which seems comparable to rent in areas like SF.
On top of that I think historical appreciation is around 1% (we should expect it to be somewhere between “no growth” and “land stays a constant fraction of GDP”). So that looks like buying should ballpark 10-30% cheaper if you ignore all the transaction costs, presumably because rent prices are factoring in a bunch of frictions. That sounds plausible enough to me, but in reality I expect this is a complicated mess that you can’t easily sort out in a short blog post and varies from area to area.
If you want to argue for “buying is usually a terrible idea, investors are idiots or speculators” I think you should be getting into the actual numbers.
The actual numbers are somewhat idiosyncratic but my main point is that in the process of investigating the numbers most people don’t evaluate downsides because they don’t occur to them. Once these costs are taken into account the marginal buyer will flip on the decision. In extremely hot markets you are much more likely to be like the marginal buyer rather than the average buyer.