
Where do people get money to buy CA homes these days? Often, from mom and dad - prostoalex
https://www.scpr.org/news/2018/07/31/85109/where-do-people-get-money-to-buy-california-homes/
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ironjunkie
The terrible thing here is that owning a home is pictured as the American
dream, a goal in itself.

I think it should almost only be seen as an investment. Like any sizeable
investment, a lot of calculation should be made to decide if it makes sense or
not. (And spoiler alert, in most places in California it does not make any
sense anymore)

Buying a home is extremely emotional and I'm actually shocked to see how few
homeowner actually even calculated the opportunity cost of buying a home vs
renting and investing the downpayment. Or even calculated anything at all.
Never forget there is a huge lobby of people that want you to buy a home.
(agents, banks, realtor, people that already own a home, ...)

I think there is that emotional bias to absolutely want to buy a home, mixed
with the fact that people think they will get the same +200% returns that you
see since 2012 in the bay area.

(Please don't respond with the typical "Paying rent is like throwing money out
of the window")

As a reference, a blog post on this subject that I mostly agree with:
[https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-
in-t...](https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-the-bay-
area-right-now-9eff37da8d6)

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

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opencl
Landlords make a profit so they are apparently throwing less money out the
window than the renters.

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ironjunkie
Landlords are only making a profit because of the exceptional last couple of
years in California. I will bet you that if you take a mortgage today, you
will most probably not make a profit vs renting.

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jack9
> Landlords are only making a profit because of the exceptional last couple of
> years in California

That's a particularly pointless bit of misinformation. Holding property isn't
free, in general. Land is quite the liability in California unless you make
enough to justify holding it. Landlords make plenty of money. Currently 750/mo
(or more) for single rooms out of a house in southern california for anything
decent. With AirBnB you do much better. The math is straightforward.

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fourmii
This is actually the same in Australia, especially in Melbourne and Sydney
where home prices have risen crazily over the past 10 or so years. We call it
the bank of mum and dad:

[https://www.domain.com.au/money-markets/majority-of-
firsthom...](https://www.domain.com.au/money-markets/majority-of-firsthome-
buyers-now-use-bank-of-mum-and-dad-20180502-h0zjun-432274/)

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

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socalnate1
It feels like 2007 all over again (in Cali).

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classichasclass
What drove me to buy was incredibly noisy new upstairs neighbours, the near
bottom of the local real estate market in 2011, and the ability to scrape
together a minimum down payment out of my savings.

Were it not for the conjunction of those three suns, I might still be in my
tiny apartment. I'm very glad I'm not.

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

~~~
wahern
The Great Recession will likely be the only period in our lifetimes where
anyone could reasonably time the bottom of the market. I invested as much as I
could but wasn't in a position to buy real estate, though I spent many
evenings 2009-2011 trawling through Trulia and Zillow lamenting the missed
opportunities.

~~~
ironjunkie
It is way more difficult to figure it out than you think. There are plenty of
"local minimums" (or false bottoms), that go a bit back up then goes down
again.

Same thing is happening also for local maximum. People try to time the top of
the market. People thought it was in Summer 2015, and lately around
January//February 2018.

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wahern
What you say is a truism.

But the Great Recession really was an exception. Not literally--you couldn't
know for sure. But being able to purchase a beautiful (round dining room!)
2-bedroom condo in a completely renovated building in Nob Hill for $300k or
buy Ford stock for $0.99 were as close to "sure thing" opportunities as there
ever has been or ever will be. And if they didn't pan out? You'd have worse
things to worry about because it would have been Mad Max times...

Some may be skeptical about my examples (especially if they weren't paying
attention at the time), but I assure you they were no-brainers. The reason
many people didn't get rich during the time was because most of the people who
normally would have had the money and inclination to make the investments were
completely illiquid. And everybody else was simply scared. The flip side of
irrational exuberance is irrational fear.

I didn't have enough money for the condo. But I bought 1000 shares of that
Ford stock my first year of law school, and sold it at a 10x gain (!) the last
year of school to pay for all my living expenses in lieu of more loans.

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randyrand
Familial merit is something we should embrace.

Being able to pass your wealth onto your children is incredibly rewarding.

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madengr
How are they getting over the $15k gift limit for federal taxation?

If the dude can’t cough up $10k for a $375k house, he has no business being in
that house. I wonder if these mortgages are ARMs, or > 30 years.

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tanderson92
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.

~~~
moonka
In addition to this, it's per person. If you have Mom + Dad in the picture,
each can gift 15K, and if it's to a couple, they can each gift 15K to each
member of the couple. Thus you can pass down 60K each year without any sort of
forms/taxes.

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dmitrygr
Some of us skimped on $15 lattes, very fancy apartments in San Francisco, and
food delivery to save the money to do it. Don't generalize. Not every home
owner is a spoiled brat.

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deathanatos
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...](https://money.cnn.com/2017/05/15/news/millennials-home-buying-
avocado-toast/index.html)

~~~
dublidu
I agree there are certainly systemic issues that inflate prices beyond the
reach of most Bay Area residents. However, first time home buyers are probably
buying something cheaper than median. With dual tech income and no dependents,
it’s certainly still possible to buy a condo or townhouse without family
money.

