> Buying instead of renting forces you to live more frugal

As a home owner, I'm going to ask someone to elucidate on this sentiment.

Here is my take....

1. People think they can afford to buy a place at $X

2. People find a place at $X+Y and say "it'll be tough, but I love this place"

3. People find out actually owning a house costs $X+$Y+$Z and they can barely make their house payments and supporting costs

4. Eventually (after enough mortgage payments) your principal payments become large enough to take on the form of "forced savings"

I think this might work for some, but there are plenty of examples where people lose their homes because they underestimated the costs. Someone get sicks and goes on LT disability at 60% of their salary and end up missing mortgage payments.

This is not the reality for the vast majority of homeowners. Banks are very good at estimating these costs, and they will decline loans that are too large for the homeowner to maintain a financial margin of safety.

I anticipate the objection that the financial crisis proves me wrong. Well, even at the worst of the crisis, annual foreclosure rates were under 10% (i.e. 90+% of mortgages were stable). And, banks have certainly further tightened up their underwriting since then.

This is just nuts.

Agreed, this is an insane (and insanely stressful) way of saving.

Even in this case, isn’t there a reasonably good chance the person could have sold it for 10% more than ($X+$Y+$Z)[1] at the time of the crisis? The lender and the loaner will part with the equity based on the mortgage payments over the years.

Based on cursory look into Redfin data, homes in the Bay Area are vanishing in 5-12 days, selling at 100-300K above the listed price.

[1] I hope we don’t cite recession here.

In the bay area over the last 5 years? Sure.

Across much of the US? Probably not. Don't forget the average cost of selling a house is 6%. Buy a place for $500K and if the value of the house doesn't go up by at least 6% you've lost money.

That doesn't include all the other costs associated with buying a new house (moving costs, etc).

Not to mention loan origination fees, appraisals, and inspections costs.

Forgive me, I was very biased toward Bay Area.

The idea is that you are contractually constrained to invest into a long-term asset (the house) on a monthly basis. In principle people who rent are paying less each month and should on average do just as well if they invest that money elsewhere, but in practice they tend to spent the extra money. Once they reach retirement, they have fewer assets.

That's probably true for most periods in history, but we're still within a much-receded housing economy. When I bought my house, my rent was a couple hundred bucks more and with insurance + taxes I ended up paying ~ $30 more a month for more than double the space and, of course, actual assets.

There are places where this doesn't make sense, and there are times where it absolutely doesn't make sense, but present day is a lot different. My anecdote of paying less (or slightly more) in mortgage + associated versus rent is not all that uncommon these days.

The real hidden cost, if you ask me, is the way it changes your sense of mobility.

Yes, but there is also the opportunity cost of your downpayment, the transaction costs of getting into and out of a house, and maintenance. Oh man, maintenance.

Ref - transaction costs. You have to figure it will cost you around ~8% of the value of a property to both get into and out of it. This does not include the cost of movers. With a rental your transaction costs might be $50 for the apartment application fee.

I wish - I'm currently renting a house for 1200 pounds/month(so...1900 USD per month) and the agency took $1000 just to take the property off the market("admin fee" - non-returnable, doesn't go towards the deposit, it's just money down the drain really), then 1 month rent as deposit, and 1 month rent in advance. So really, I spent nearly $6k just to start renting a place.

I'm really considering a mortgage, but don't have money for the downpayment. Our mortgage payments would be actually less than what we pay for rent now.

Rent pays maintenance costs, too it's just forcibly amortized and externalized. Higher-density housing like apartments and condos do have scale efficiencies reduce per-unit/occupant maintenance costs. But the difference between renting and buying is somewhat apples to oranges if you're comparing renting an apartment to buying a house.

Maybe in US it is cheap to rent, but at least in Poland, if you can get a mortgage, your mortgage monthly payment is often much lower than the rent payment for the same property. Renting here is only good if you don't plan to stay for long or if you actually can't get a good mortgage, because your income is low. The more you earn, typically the better interest rate you can get with mortgage (mine is currently 1.8% total), and with decreasing rate you're paying less and less with every year, contrary to more and more when renting.

It depends a lot on where you live in the US. In big cities, I'm sure it's definitely cheaper to rent. In more rural areas it's often less obvious which is the cheaper option and it really comes down to preference. And sometimes in rural areas it's cheaper to just own, depending on the cost of the houe.

In Berlin, Germany it's (at least at first) a lot cheaper to rent. The place we're renting for 500 euro/m would be about 200k euro if we wanted to buy it, which would mean something like 600-650 euro/m for 30 years (with maybe 40-50k euro down-payment).

Well, but after 30 years, when you retire the place is yours own and your monthly payment goes down. Even if you saved that 100-150 euro every month, you'd not afford buying it after 30 years, assuming it stayed at the same price-point.

On the other hand, it is hard to believe you can rent a 200k€ place for 500€/m. In Warsaw, a 2-room 40-50 m² apartment in the city center costs about 400-500€/m to rent, but if you wanted to buy it, offer prices start below 100k€.

    On the other hand, it is hard to believe you can rent a
    200k€ place for 500€/m. In Warsaw, a 2-room 40-50 m² 
    apartment in the city center costs about 400-500€/m to
    rent, but if you wanted to buy it, offer prices start
    below 100k€.

Believe it! Or look at http://www.immobilienscout24.de/ for Berlin (in the combo box right of the search field "kaufen" means buy and "mieten" means rent - pick the first option in both).

There are places that are unusual (like Mitte - the center of the city), but for ~90%+ of Berlin the pattern I described above more or less holds.

    Even if you saved that 100-150 euro every month, 
    you'd not afford buying it after 30 years, assuming 
    it stayed at the same price-point.

The thing is that many people don't have an extra 150 euros per month (not to mention ~50k euros for the down payment) to save or invest in a mortgage, they spend everything they earn every month even when renting.

If you're in a position where you have extra money and you can choose whether to invest it in the stock-market, buy a nice car, or put a down-payment+mortgage on a place to live it's a different consideration.

This is the point I was making: renting is the only choice if you can't get a safe mortgage with good terms. And getting a mortgage with monthly payment X, when you could hardly pay more than X would be a very risky option and even if some (crazy) bank agreed to it, they would set a very high interest rate for covering the risk. But getting a mortgage with a monthly payment X when you can really afford 4X is a totally different story.

While Berlin is a bit special case with its housing supply, renting is actually crazy expensive in Poland. You should compare the prices to e.g. Lithuania or Estonia, the difference in affordability is mindblowing.

>> in practice they tend to spent the extra money. Once they reach retirement, they have fewer assets.

They presumably spend the money on things they want. Forced savings means forced forgone consumption.

Every marginal dollar into savings isn't always a net positive. It depends on a lot of different factors including: life expectancy, whether or not you have dependents, how much you already have saved, your income, your alternatives, and not least of all your intertemporal discount rate.

There seems to be some sort of savings fundamentalism backlash against a culturally low savings rate. In a sound bite situation there may be no choice but to pick a simple message and go with it, but in a longer form discussion there's room for more nuance.

I was no more frugal having bought a house, than when I was putting all my money away towards a deposit on a house, probably even less so.

I would have thought that the biggest reasons were (roughly) freezing your shelter expense against inflation, and putting an upper limit on how long you pay for shelter.

i.e. If I rent a £1000PCM flat for the rest of my life, my bill for shelter will continue to be roughly £1000PCM in today's money for the rest of my life.

If I buy a house with a £1000PCM mortgage payment, it will remain roughly £1000PCM for the rest the mortgage (though current low interest rates mean that it probably won't), which, in 25 years time could be worth just over half as much as it is now. And in 25 years time, I won't have to spend on shelter any more. I will have maintenance costs to pay for, but they are unlikely to equate more than £1000PCM in today's money over my lifetime.

So, where M is homeowner maintenance costs, someone with N+M living expenses is more likely to be better off than someone with £1000+N living expenses.