It’s actually not true that a house is affordable to the person living in it.
First, plenty of people own houses, paid-off even, but have little else in the way of income or assets, and, other than not wanting to move, they might be much better off if the home magically turned into cash.
Second, taxes. In the US, in HCOL markets, selling your house may involve large amounts of capital gains tax, and in California, you risk losing your low Property 13 basis.
I suspect that, in markets like Palo Alto, a lot of houses are owned by people who could not credibly afford those houses if they were to sell and then decide to buy an equivalent house next door.
Sure, someone can afford your house, but that’s a nearly vacuous statement.
My in-laws bought a house in the East Bay area in 2000 for about $400k. Worth about $1.5m (according to zillow and similar homes in the neighborhood that have recently sold). Fully paid off now, and they're retired.
If they were to sell it, they'd have to pay taxes on 1.1m of "profit." sure they can write off renovations and deduct $500k but that's still a lot of taxes to pay!
So yeah, they wouldn't be able to sell and rebuy even their own house because uncle sam just took about $100k on the sale of their house.
$1.1m is a lot of money to pay taxes on for middle class retirees!
My point is that they wouldn't be able to rebuy their house, since they'd pay taxes on the "profit," and then need to get another mortgage at 6%.
When I was shopping for a house one of the sellers had a special exclusion where they'd roll the proceeds into a special account that they'd use to buy another house so they won't pay taxes on the profit. I think it's quite strange that RE investors get that exclusion but if it's your primary residence you don't. I feel like it should be the other way around.
It’s actually not true that a house is affordable to the person living in it.
First, plenty of people own houses, paid-off even, but have little else in the way of income or assets, and, other than not wanting to move, they might be much better off if the home magically turned into cash.
Second, taxes. In the US, in HCOL markets, selling your house may involve large amounts of capital gains tax, and in California, you risk losing your low Property 13 basis.
I suspect that, in markets like Palo Alto, a lot of houses are owned by people who could not credibly afford those houses if they were to sell and then decide to buy an equivalent house next door.
Sure, someone can afford your house, but that’s a nearly vacuous statement.