I was recently asked to contribute a response to this question (What are some of the biggest threats to homeownership?) in the Sound Off column which appears each Sunday in the San Francisco Chronicle. My response (below) has prompted a lot of discussion in our local real estate community:
Affordability in our desirable area has historically been an obstacle to home ownership here. Even for well-educated people with high paying jobs, owning a home is not a given. Because of high demand for homes here, and the limited inventory of them, I don’t see this situation changing anytime soon.
One longer range solution which would increase inventory and create more buying options would be to ease the capital gains tax burden on selling your primary residence. Currently, if you sell your home, you may exclude up to $250K of your capital gain from tax—the exclusion is $500K for married couples filing jointly. In our area this prevents many long term home owners from selling their primary residences and moving on to their next adventures, since it doesn’t make sound financial sense.
In order to enjoy the benefits of home ownership (and there are many) I always advise my buyers is to stay flexible and creative in their search. Expand the areas you’re looking in, consider a condo or townhouse, go beyond just test scores when you research schools to find a neighborhood which may be a good fit. $1–2M might not purchase the dream home you imagined, but you may find a home and neighborhood you love and/or a stepping-stone for the future.