Los Angeles has gone housing market crazy.

[Mike R.]

I have been renting a house for the past 7 years in LA and now sadly the family wants to move back in. I figured it's time to buy my own place, especially with rents so high, but timing couldn't be worse. Every home has 15 offers and I have gone $30 to $40k over asking yet still have lost 6 so far. 

Bubble? 

Buying isn't happening right now. 

Anyone else experiencing this? 

[Account Closed]

Originally posted by @Mike R.:

So Matt, you are saying you save in mortgage taxes so mat as well buy. 

Mike,

Quick and dirty calculations. $36k/yr in PITI (Principal, Interest, Tax and Insurance) on a $600k purchase w/ 20% down. Less $8k in principal pay down, your allowable deduction is $28k. Plus you claim yourself and some other stuff. Your total deductions are closer to $34k.

At a conservative 25% tax bracket for Fed & State combined, you're getting $8,500 in refunds each year. The refunds should cover your annual property tax and insurance. 

$36k gross annual PITI less $8k/yr in principal pay down (aka forced savings) less $8,500 in Fed & State refunds, your net carrying cost is $1,625/mo. Buying is cheaper than renting $2,500/mo.

The delta between renting and owning is $875/mo, or $10,500/yr. So your $120k down payment is earning you about about 8% annually. Not all is lost with the down payment. I would buy if I were you. 

As you have witnessed, you're exposed to the ravages of inflation when you rent. Once you bought, you have essentially fixed your living cost. It's a short-term pain for long-term gain. 

Good luck.