Is a HYSA really better than the market for short-term house down payment savings with 24% tax bracket?

The tax treatment is pretty much the same in your case. Both HYSA interest and short-term capital gains (held less than a year) are taxed as ordinary income at your marginal tax rate, which you mentioned is 24%. There's no tax advantage of one over the other, so your decision should really come down to risk tolerance. With a house purchase on the horizon in the short term (12-18 months), most financial advisors would recommend keeping your down payment funds in something very stable like a HYSA, CD, or Treasury bills. The stock market could easily drop 20% during that timeframe, which would significantly impact your home-buying plans. Also, don't forget about state taxes, which would apply to both types of income in most states. Some states might have different rates for different types of income, but that's less common.

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Putting aside the tax implications which seem identical in your case, consider that the HYSA is guaranteed while the market is not. With a major purchase like a house on the horizon, many financial advisors recommend against putting your down payment in the market if you need it within 2-3 years. The potential upside of the market needs to be weighed against the very real possibility of a 10-30% drawdown right when you need the money. A 5% guaranteed return is actually quite good historically speaking.

Have you considered Short-Term Treasury Bills instead? They're yielding around 5.3-5.4% right now, and they have a tax advantage over HYSAs because they're exempt from state and local taxes. If you're in a high-tax state, this could give you a better after-tax return than a HYSA.

I'd echo what others have said about Treasury bills being worth considering. The state tax exemption can be a real advantage depending on where you live. One thing I haven't seen mentioned yet is considering a CD ladder as another option. Some banks are offering competitive rates on CDs (around 4.5-5.2%) with terms that could align with your 12-18 month timeline. While they don't have the state tax advantage of T-bills, they might offer slightly better liquidity planning since you can time the maturities exactly when you expect to need the funds. You could also look into money market accounts, which sometimes offer rates competitive with HYSAs but with check-writing privileges that might be useful during the home buying process when you need to move money quickly for earnest money deposits, inspections, etc. Given your substantial down payment amount ($325k), you might also want to consider spreading across multiple institutions to stay within FDIC limits if you go the HYSA route. Most banks have $250k FDIC coverage per depositor, so you'd want to split your funds to ensure full protection.