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