Here is a Rent vs. Own calculator:
But honestly, most people who buy in Palo Alto do so not becuase they think it's a great investment that will pay off in 5 years, but because they LIKE the area and LIKE the idea of owning their living space. And even if it takes years before the investment begins to pay off, they get the immediate benefits of a nice neighborhood, sense of community, larger space, garden, etc.
Regarding the Palo Alto market being "different"... well technically speaking, every city is different;) If you want to sift through the sales hype and look at actuall price figures, check out this link:
I hope this helps! If you DO decide that it's time to buy, let me know and we can go check out some properties.
Realtor, Short Sale Specialist
Historically Palo Alto houses have appreciated well. It is true that to begin with, buying a house in Palo Alto by paying exorbitant prices makes no sense when you compare it to the average rental rate. However, if you toured available rental properties and for-sale properties, you will see that rentals are in quite a bad shape. Average rent is lower than average mortgage payment but average rental shows a lot more badly than average for-sale property. Rentals that are attractive have expensive tags too, and the difference narrows. Also, rents have climbed crazily and current rental market is super hot.
Also, I know people who were asked to vacate their rental by their landlords for reasons (mostly legitimate) such as landlord wanting to move back, wanting to tear down the property etc. Therefore there is no sense of permanency for a long time horizon. Especially if you want to live in Palo Alto due to your kids schools, you will realize that you plan to be there for 5-10 years and it is rare that you will continue living in the same property, although possible.
Conversely, if you do choose to own, you have the option of improving the property, typically do not have to vacate it forcibly (assuming no financial hardship), and within approximately 10 years or so, the property will be in a state where you can get higher rent for it than your mortgage + property taxes. Now, I have no numbers to prove it as a general case but I have my experience and experience of friends and neighbors; no guarantees for the future. You can bring down this horizon by making aggressive payments to your mortgage.
However, today with interest rates in the 4 percent range and FHA loans with 3 percent down payments it makes sense to buy. You can buy a home in Solano county for less than you would pay in rent for the same home.
Just don't confuse your personal laziness with thinking that a stated conclusion must therefore be wrong.
At the end of the day, YOU have to make your own determination, based on your own risk tolerance level and your individual financial situation. The NY Times rent vs. buy calculator is the very best I've seen.
Here is my perspective. Given current conditions, if you have the financial means AND you have a long term horizon (at least 7 years) AND you find a house you really love, then buying makes sense to me, especially in a premier town like Palo Alto. I'm not so sure about
Redwood City or Stockton or Vallejo, but Palo Alto is different.
It is less expensive to rent than to own in Palo Alto as far as cash flow right now. However, this may or may not be true in the future. With todays low interest rates and the upward pressure on rents, in the future it may be that if you buy today then some number of years in the future owning may be less expensive renting that same home. However, the real payoff comes when the loan is paid off. If you buy a home with a 30 year fixed rate loan, or even better a 15 year fixed rate loan, then after the loan is paid off you get to live in the house with no mortgage payment, rent it out for cash flow, or give it to an heir, none of which can be done if you rent. You will also most likely have some excellent appreciation if you hold on to the home for the duration of the loan. There are also personal life style issues involved in renting vs buying that coan only be assessed by the individual.
FYI, "bread and butter" Palo Alto properties have been holding their value quite well, relative to other cities in the area.
Ultimately, of course, as others have been saying, it's a personal decision based on your own individual considerations. Certainly, if you don't plan to live in the house for at least a few years, "costs of sale" may put you in the negative when you sell.
Pacific Century Realty
Buyer Rebates Up to 50%
Listing Commissions as Low as 1%
Since the cost of selling is roughly around 7.2 %, you need to have that kind of appreciation in order not to loose any money. Of course, this is without counting the tax advantages of owning.
I hope this helps!