Except then you're always at the mercy of a landlord who can raise your rental rates, and you won't be building any equity. There's no rent control on the Peninsula. I know people who have gotten a $600/month rent increase and been totally screwed. Whereas owners benefit from Prop 13 which is basically rent control for owners- their property taxes never go up.
I agree and disagree. In most areas, I think it's true that other asset classes outperform real estate. One challenge in the Bay Area is that housing has been going up faster than non-housing investments. For example, I just checked the house next door to me on Trulia, and it's up 6X in 20 years. That's an almost 10% annual rate of return. So in fact if you don't own a house, you're probably falling even further behind from your house-owning peers. At least in this area.
You're under-stating the return. Unlike other investments you can leverage the house with a mortgage. Assuming you put only 20% down you're making 50%/year gains.
Except every year you are paying about 6% of the purchase price in principal and interest and property tax (plus maintenance and water), so the math isn't quite that simple.
So you're saying if you buy a house, you will be making incredible gains. If not, then you will be making gains at least as good as everywhere else. Sounds like win-win to me.
There are very few assets that return 10% annually for 20 years. It's impossible to know what will happen in the next 20 years, but owning a house in the Bay Area for the last few decades would have been a much better investment than paying a little less for rent and investing what's left over.
6x in 20years is lower return than stock shares in most of the employers that have been driving up housing prices (for obvious reasons -- those companies' growth are funding the housing price gains)
It is normally a Bad Idea to invest heavily in your employer due to the Putting All Your Eggs In One Basket principle. If anything happens, you lose your job and investments.
However, the house is leveraged. At 20% down any gains in house equity represent five times the same percentage gain in an unleveraged investment. If you put 200k down on a 1m house and the house appreciates to 1.1m, then that 10% gain in equity is a 50% gain on what you actually invested. Of course losses will be magnified too.
