Rent vs Buy in the Era of High Mortgage Rates

I am curious how the recent jump in mortgage rate impacts the age-old “rent v buy” debate in the Bay Area. To get some concrete data I picked a “middle of the road” neighborhood, Irvington in Fremont, to do some comparisons. I just look at SFH. People can do the same with TH or Condo.

On Redfin, there are only 4 SFH for rent at the moment. Rent is about 4k a month.

There are 43 (!) SFH’s for sale right now. Average around 1.4M. Let’s say loan at 80% LTV is 1.12M, and today’s jumbo 30Y fixed rate is 4.82%. Total mortgage payment per month is around 5.9k, but we should only look at the interests portion, which starts at 4.5k and gradually goes down. Let’s just use 4.4k as an average for the first 3 years.

Property tax for a 1.4M house is around 1.4k a month. But most people get at least some discount on that. How much is hard to model in general.

So interests + tax = 5.8k already. With insurance and maintenance, that’s around 6.5k?

Buy: 6.5k vs Rent: 4k.

Of course the logic for buying has always been the 5x leverage with mortgage and betting on house appreciation. Interests rate can come down and owners can refinance. The traditional pro-buy arguments. On the other hand, stocks are rocking around a cyclical bottom region. Do people want to sell their stocks and RSU now to get down payment money? Will house price flatline for a few years so there’s no hurry to buy right now?


In what way? As far as I can tell the owner-occupied rebate is quite small. And we’ve maxed out our federal deductability for taxes on state tax alone, so it’s not tax-deductible. Is there a secret tax-trick I’m missing?


Err… maybe you make too much money?


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When we bought in 2018, we were paying I think $8700K PITI (plus $2K/month to pay off a family-loan) when rent was $2500. We’ve managed to bring it down to about $7.7K now. But yeah… it’ll never match up. We’re bargaining on marital happiness and house appreciation (currently at $800K-$1M if you believe Redfin/Zillow).

Having purchased before Covid hit - the extra 2 bedrooms and family room was a lifesaver during the shelter in place. It really reduced the stress for my husband to be able to work out of a guest room and for each of the kids to have their own space.

Gotta afford the house somehow!!!

There’s a $10k SALT limit and CA has a high income tax rate. Anyone affording the a $5.9k/mo mortgage is going to hit the $10k limit on state income taxes. They aren’t deducting property taxes.



I presume the assumption is have the necessary downpayment and able to afford the mortgage repayment. From the financial perspective, I would rent, invest the downpayment in S&P and dump the ‘monthly mortgage money’ less rent into S&P monthly. However, if I am a first-time buyer, I would buy to enjoy the house :slight_smile:

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What’s return of this strategy vs buying the Fremont house, say in the next 5 years? Are you assuming Fremont house price to be mostly flatlinging?


No need to do detailed computation. Use intuition and logical reasoning. No point taking on the risk of buying a house with leverage :scream: when all indicators say house prices have peaked and declining. Once you have bought the house, is expensive to sell the house. Parking your money in S&P (which have already declined by 20+%) and monitor is safer. If house price declines by a large amount, you can always sell your S&P and buy a house when you think is cheap enough. Even if both (house price and S&P) declines, pretty sure house price (house bought with leverage) would decline more than S&P in absolute dollar term. Also, historically S&P would recover earlier than house price.

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National Case Shiller chart. There’s a clear acceleration after Covid. My hunch is that we are pulling forward a lot of the growth in the last 24 months, and appreciation for the next 5 years won’t be anywhere nearly as good.

On the other hand stocks have crashed and many excellent names are selling like they are garbage. It seems to me real estate can wait, and return could be better in the stock market in the next 5 years.


You gave up on RE years ago. Seems like almost everyone on the forum switched to stocks which have been on a roller coaster. Two crashes in 2 years. High inflation and oil shocks are not good for stocks like in the 70s. But RE skyrocketed in the 70s. And has in the last 2 years. Nobody knows the future. But as long as the FED keeps raising rates stocks are headed south.

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Asking for confirmation?

He and a few others. Selling RE and buy high growth stocks such as DOCU and ROKU.

I’d agree that it’s best to invest in stocks this month.

As for appreciation, 50% in 4 years on a house seems way too much, so if it plateaus, no big deal to me.

Nope, I say RE is KING baby and will always be KING!!! (Granted I do have pension and 401K from employer.).

My move from Oaktown to San Bruno was genius. Smaller homes around me are selling easily for over 1.5M still to this day with higher rates and all I wanted to do was to park my money while I ate away my cap gain with the owner move in after 1031 exchange. Time flies, I’ve been in the home as long as my tenant now. Once I put in an ADU or guest house that has a view on the property we should be ready to go to market for easily over 2M. Malaysia, here I come…

Why bother with an ADU. Big money big hassle. Sell now and enjoy your move. I have been an investor and builder since 1976. I know enough about building to know building an ADU isn’t worth the hassle. I currently own 2. Basically got them for free. Still a pain in the ass. Just remodeled one. The tenant gave me free labor. The other is rented to a-handyman, first good tenant there


Invest ADU money in S&P.

S&P, less hassle.

Where in Malaysia?

Because I have a freaking 2/3 of an acre and I have to show value…

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My choice: Penang
Wifey: Prefers Southern Malaysia, Johor Bahru where parents are; reasonably close to her brother who is in Singapore; her sister is in Pontian which I guess is a sleepy sea side town that does look promising now that a shortcut bridge between JB and there is about done.

While you may think wifey will win, not so fast… if I use my own disposable cash I might just buy Penang. Now, if wifey wants to spend some of her own dough to be closer to parents, I might have to concede especially if it is something like this in Puteri Harbour which is in JB I guess and just across from Singapore…


Plan is to go in December for a visit and to house hunt.


My impression of Penang is that it’s pretty sleepy. Not much to do. So KL is ruled out?