Hi NorthDrum, there's a lot of stuff there. I'll have to break it up.
In an extreme example if stocks and shares collapse and house prices collapse, you still have a house. It is hugely difficult for Irish People to discuss mortgages without putting some level of value on actually owning a tangible asset and the psychological comfort it brings many.
I think it would be better to simply discuss what is prudent for people to do rather than use the national psyche/stereotype to justify irrational behaviour. I realise Irish people are generally fixated with home ownership and struggle to imagine being comfortable renting for their lives. I also realise we probably drink too much, for example, but I should be allowed can argue against alcoholism without expecting a response along the lines of "a sure, you don't know how important the pub is to Irish people.". I know exactly how it is; it's taken me a while to deal with my own fear of not owning a home. Even now I cannot help having a look at daft/myhome once a week.
I've compared the outcome for an individual in the event of a share price collapse and a house price fall in a previous response to Bronte. Maybe you could respond to those scenarios? For a typical scenario, it is absolutely obvious that a house price collapse causes financial devastation on a scale which a share price collapse cannot.
Share prices are far more liquid and so people are aware their value can up and down and that is factored into their mental model. Irish people do not have the same experience of (nominally) falling house prices and so I think they are aware of the horrendous effects of falling house prices in a country where most of individual wealth has been leveraged to the hilt against property.
I really wanted to avoid anecdotes but a friend, for example, who bought 3 years ago is now effectively bust being about 40k into negative equity. Over the years I've spent some money on horses, poker and various types of gambling, I've "invested" in all sorts of rubbish like forestry funds, a bar of gold and whatnot but at least, even the stupidest of these "investments" were never even close to being a threat to my solvency.
Since buying a house carries the significant risk that it will make you insolvent for decades, I believe that such an "investment" decision should be subject to far more rigourous criticism.
Yes, if my friend had bought 10 years ago instead of 3, he would now be laughing and would probably be far wealthier than me. All highly leveraged investments behave like this allowing massive riches to be made or completely wiping out the investor. This is not a suitable vehicle for the majority of your personal wealth.
The stereotypical Irish person considers buying unleveraged shares to be gambling while buying property (even a "holiday home") leveraged 10 or 20 times is seen as financial prudence. This financial naivity in the extreme.
A financial priority (if that’s what this thread is about) is not soley dictated by how much money you can make but on what priorities you have as an individual. Nobody has a financial priority to go on holidays, buy and maintain a car, go out drinking etc. Many people in Ireland take great personal satisfaction about owning their house; it’s normally people who don’t agree with mortgages who cannot understand this very basic concept-desire. This thread seems to be more about living it up now, hoping that you get the returns on your shares and working off what works on continental Europe without factoring in national economic factors (many of which Brendan has highlighted).
I have repeatedly acknowledged the extra benefits of owning your own home. Please, do the favour of pointing where anyone in this thread tried to claim that there was no utility, comfort of security in being the owner your own home? I'm repeating myself at this stage.
I also don't know where you get the "This thread seems to be more about living it up now" from? Everyone here was discussing financial prudence and how people should arrange their finances. Where did this come from?
If I take out a mortgage today, I owe x amount over x years. If I save regularly in shares I own x amount at any given time with no set years per say. Either way there’s no guarantee that you will be better off with either. If I bought a house in 1979 and my friend invested x amount (difference between rent cost and mortgage cost) since then, am I hugely better off one way or another (considering the crash in both areas).
Is it not completely obviously that you certainly can end up far far worse off with the mortgage? I refer you back again to my response to Bronte with examples of the sort of things that can happen with both. If I lose every penny I've put shares that's one thing; ending up owing the bank 10 times your initial investment is a different kettle of fish.
You are relying on people being constantly prudent with their savings and regularly investing in monitored shares. With a mortgage comes unquestionable responsibility, you have to pay your premium monthly, again good and bad for different reasons, but still a point that should be acknowledged.
Sorry, this is a very very weak argument for buying a house; the inflexibility and unsuitability of the payment schedule is simply not an advantage. Your general point is an interesting topic but doesn't belong here; you should start another thread discussing what advice is appropriate for the feckless and financially imprudent.
You are relying on market prices and fund performance to grow your investment. You are not relying on anything if you own a home, unless you are intending on selling it (this is a key factor in the psyche of shares v mortgage). If you are using the home daily the quality of life (even personally) can be unquantifiable in comparison to great share returns. Generally people won’t mope around a house thinking “my house has lost 50% of its value”, but I would imagine if you were saving for 20+ years and you lost 50% value you may even be suicidal in some cases!!!
I'm not from Mars, I understand how home ownership works and feels. I've already said I am not against home ownership. We are talking about the investment aspect of home ownership here. Home ownership is being proposed as offering the most prudent way for a young person to become financially secure; that's what I am arguing against.
By investing in shares and renting accommodation you are adding more variables to your life and reducing the control you have in general. Financially you are flexible in that you can move or sell up relatively easily, but as far as being in control of the stability of your life in general, I don’t see how anybody could say this is anymore prudent then taking out a mortgage.
How am I "reducing the control"? I have instant access to my wealth; I have no fear of a rainy-day situation as I can liquidate some of it. I can vary how much I save with my personal circumstances (very useful during the last year as I was out of work for a while). Someone with a legally watertight contractual obligation to pay 300k back to the bank over a period of 20 or 30 years in amounts determined by the ECB has more financial control? I can't agree.
I've snipped some of the rest because I think you have essentially repeated some points which I addressed above, particularly I think you've gotten completely wrong about the effects of share price and house price movements on individuals.
On a different note, owning a car should be a similar topic. Why stop at owning a house!. Taking taxes, insurance and maintenance (not to mention initial purchase cost), owning a car is a luxury that most of us don’t require yet choose to pay for and it’s an asset that will nearly always depreciate in value. Over a lifetime cars probably cost us no less than the price of a small house (after factoring in equivalent public transport costs).
Ok, I suspect we have radical different world views. If I could rent a car for half the money it cost to maintain an "owned" car, I would do it in a heartbeat. This simply makes complete sense to me, does it not to you? You'd rather drive an 20k Ford that you own than a 40k BWM that you rent if both cost the same including all the expenses?
I'm wondering whether the fact that I seem to be struggling to get my point across here is because I actually think about things exactly in this way. I very nearly got rid of my car 2 years ago because it was only marginally cheaper than renting cars for the weekends I got out of Dublin. If it had been cheaper, I wouldn't have hesitated. That's just the way I am.
My main point is that a financial Priority is not based simply on what can potentially be made from an investment. If you like the idea of renting and investing and it suits your lifestyle then by all means, let yourself go . . Theres as much a chance that you will make your millions as there is ending up no better (or worse) then if you had taken out a mortgage.
People have all sorts of non-investment motivations in life sure but we are discussing the investment value of owning your own home here.
