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Most Germans don’t buy their homes, they rent

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Re: Most Germans don’t buy their homes, they rent

#351

Post by bzbarsky »

kriro wrote: post #61
webkike wrote: post #23

Earlier quoted context omitted.

Using credit cards does not preclude being able to afford the thing you are paying for. I regularly use my credit card for every day purchases despite having ample money in my checking account. The regular payments allow me to develop a good credit history without much worry.

Why can't you use a debit card for that? Isn't having enough money in your checking account to reasonably afford all stuff you need to live basically proof of a good credit history? Isn't the best credit history one where you never need credit in the first place?

> Why can't you use a debit card for that?

In practical terms, because in the US the handling of debit card fraud and credit card fraud is vastly different.

In the case of debit card fraud the money is gone from your account and you then spend some months trying to get it back. In the meantime, you don't have that money.

In the case of credit card fraud, you contact the credit card company, they reverse the charges, and then it's their problem after that point, not yours.

Assuming you have any self-discipline at all, a credit card is a _much_ better idea than a debit card in the US.

> Isn't the best credit history one where you never need credit in the first place?

The best credit history, if being used for the sane "will this person make timely payments on this loan?" reason, would consist of a history of timely payments on exactly this type of loan, with no debt outstanding right now.

Never needing credit before may mean you always had lots of money, or that you simply never tried to do anything that involved any large amounts of money and now you want to do such a thing....

Re: Most Germans don’t buy their homes, they rent

#352

Post by bzbarsky »

aianus wrote: post #187
Normal_gaussian wrote: post #176

Earlier quoted context omitted.

I don't see that this is a real problem for ownership. You can sell the house and buy another. Sure its more complex than simply giving notice and leaving but it isn't hard.

That costs a combined 6% of the property in brokers fees alone. That's like, $30k every time you move.

You're assuming a $500k house price? That's quite a bit above the median in the US. The median is closer to $200k, which would be $12k for the real estate agent fees (assuming you don't use redfin, of course). And of course you can price that into your sale price.

All of which is to say that optimal housing strategy depends _very_ strongly on the realities of the local market. Buying a house for $200k on a $50k salary is quite different from buying a house for $1.2 million on a $200k salary...

Re: Most Germans don’t buy their homes, they rent

#353

Post by bzbarsky »

nommm-nommm wrote: post #230
josefresco wrote: post #31

How does Germany handle retirement? In the US, your home is seen as an investment, one that can partially fun retirement or depending on the market, pre-retirement income.

>In the US, your home is seen as an investment Historically a very poor one. http://www.usatoday.com/story/money/personalfinance/2014/05/... >"Capital gains have not even been positive. From 1890 to 1990, real inflation-corrected home prices were virtually unchanged." >From 1890 -- just three decades after the Civil War -- through 2012, home prices adjusted for inflation literally went nowhere. Not a single dime of r…

> home prices adjusted for inflation literally went nowhere

Yes, but what does that mean for money invested in houses? The reason this is not the same question is that money invested in houses is leveraged, at least in the short term.

Simple example of how this can work: You buy a house at 20% down and an interest-only mortgage with a fixed interest rate of 4%. Inflation averages 3% and your house's price grows at exactly inflation. You live there for 40 years and then sell. To make our numbers simple, let's say the initial price was $100k.

So you put $20k down and take out a $80k loan. Each year you pay $3.2k in mortgage interest.

The price of your house after 40 years is, in then dollars, $326k. You sell, pay off the $80k loan, and have $246k left.

Let's consider the alternate situation: you rented for those 40 years. How much did you pay for rent? Chances are, it's no less than the interest on your loan (if only because a landlord would have that interest _and_ other expenses). In practice it probably went up over time, unlike your payments, but let's pretend it didn't. You invested your $20k downpayment in the stock market. What nominal return do you need to get to end up with $246k at the end of 40 years? The answer is about 6.5%. If inflation really averaged 3%, then that's a pretty decent stock market return, and that's all assuming that the capital gains treatment of the house and the stocks is the same (it's _not_ in the US; houses are exempt from capital gains tax to a large extent).

Obviously if you actually pay off your house all this goes out the window. ;) Likewise, if the house goes _down_ in price the leverage acts against you.

Realistically, houses are an awesome investment if you buy at a time of low-ish interest rates, and then before you've really paid off a large fraction of the house inflation spikes. If house prices simply keep up with inflation in that situation, you can really win out. People who bought in the US in the 60s and sold in the 80s or 90s did quite well, on average.

Re: Most Germans don’t buy their homes, they rent

#354

Post by DasIch »

premium-concern wrote: post #134
0xcde4c3db wrote: post #21

Earlier quoted context omitted.

In the US, at least, the shutdowns don't have much to do with our actual spending/borrowing habits. It's a structural quirk of government operation that provides a handy perennial disaster to use for political brinkmanship and finger-pointing. Basically "if you don't start being reasonable by caving to my demands, then you're going to cause a government shutdown".

> political brinkmanship and finger-pointing The difference is that parties that try to pull that in Germany not only loose elections, but are punished so hard by voters that they can't even get over the necessary 5% requirement in the next election. Have a look what happened to the FDP after they pushed through lower taxes for hotels.

In Germany not passing a new budget wouldn't let to a government shutdown. So it's not an option anyway.

Re: Most Germans don’t buy their homes, they rent

#355

Post by pjmlp »

dnissley wrote: post #328
pjmlp wrote: post #173

Earlier quoted context omitted.

Sadly they might land in the streets, if they don't have a family to support them. But this can also happen if you own a house, because there are running expenses for municipal taxes, validating the plumbing every X years, renewal of the boiler system before every winter starts, cleaning the snow or paying someone to do it....

True, but then you can sell it and potentially have enough money to live out the rest of your days (or a significant portion of them). There was a comment I read here recently about how a mortgage is in some ways a vehicle for forced savings. Not enough to retire on alone of course, but a big check if you ever need it.

The problem is that you need someone willing to buy it, and I can tell you that in the last couple of years that has been a very big issue to Portuguese and Spanish families, which cannot find any buyers.

Re: Most Germans don’t buy their homes, they rent

#356

Post by ricksplat »

hx87 wrote: post #262
ricksplat wrote: post #52

Earlier quoted context omitted.

That's all well and good as long as you're a student, or partying your twenties away and as long as everybody in the house gets on .... I've done this, and while it is good fun in parts the downsides become downright tiring.

> partying your twenties away and as long as everybody in the house gets on Why the assumption that all roommates everywhere are partying?

Just speaking from my own personal experience ...

Re: Most Germans don’t buy their homes, they rent

#357

Post by bassman9000 »

andreasklinger wrote: post #9
DocTomoe wrote: post #2

Being German I want to pPoint out that the article leaves out one cruicial detail: Building your own home puts you into debt for quite literally the rest of your life. We do not like debt.

+1 To explain cultural difference: - In the US you are considered financially stable if you are always paying your debt/credit on time. - In the germanic countries you are considered financially stable if you have none. My US Bank clerk needed a few meetings to convince me that it is good to build go into monthly credits (creditcard) to support my credit score.

This. One of my greatest shocks when moving to the US: debt is part of your life. You need debt in order to build credit history, which will get you better rates... next time you need debt.

I get warnings for not having more credit cards.

Re: Most Germans don’t buy their homes, they rent

#358

Post by DocTomoe »

pluma wrote: post #219
wil421 wrote: post #10

Earlier quoted context omitted.

What about cars? Are Germans more likely to buy or lease a new car? Or do more people buy used cars with cash?

It's culturally frowned upon to buy expensive cars or other luxury goods on credit unless absolutely necessary. My grandmother taught it to me this way: credit is for necessities; for everything else you save. Also: low quality products are more expensive than high quality products in the long run (because you have to replace them more often). So as an example, if you're in a tight spot and an expensive household app…

> (A note on "lower class": the term probably has different connotations in different cultures (and even in different parts of society); I'm specifically talking about people from a low educational background who make minimum wage in low prestige jobs or rely on social welfare.)

"Unterschicht" (=lower class) is pretty similar in meaning to "trailer-park white trash" in American English.

Re: Most Germans don’t buy their homes, they rent

#359

Post by ygra »

paganel wrote: post #309
zip1234 wrote: post #278

Earlier quoted context omitted.

Also, in 99% of rentals I've seen, the landlords put in the bare minimum to keep tenants there and paying high rents. Homeowners tend to spend money on their houses to make them nicer.

I'm now writing this from a rental apartment and it looks quite nice, it's certainly as nice as I would have arranged it had it been my own. Granted, you can't go wrong with Ikea, some nice German white appliances and generally keeping it as simple and functional as possible. I'm also living in Europe.

One thing you usually can't do, though, is rearrange walls. While very much a proponent of renting vs. buying (I'm in Germany), sometimes the layout of flats is atrocious. We have a tiny kitchen with barely enough space for a single person to work in, a gigantic living room with mostly windows and no walls to put shelves against, and despite it being 90 m² it's only three rooms which will likely prove problematic once we have kids above a certain age.

Sometimes I wonder how such layouts are created. Presumably by people who don't have to live there. Or live a very different life (eating out vs. cooking, maybe). That's one thing you can do better when building a house, although when buying one you could probably change it at great expenses as well.

Re: Most Germans don’t buy their homes, they rent

#360

Post by DocTomoe »

cm2187 wrote: post #5

So in Germany, the interest on a mortgage is non tax deductible. The article doesn't mention it but I understand that property owners are also liable for capital gain tax if they hold the property less than 10 years. I think that makes sense. There is no reason to favor individuals investing into an unproductive investment (property) over productive investments (stocks and bonds, which enable companies to raise money…

> (stocks and bonds, which enable companies to raise money to start new projects, create jobs, etc).

Interestingly, us Germans do not like those much either - mostly because of the associated risks and the Notion that "the small guy" cannot win that lind of game.

There was ... some enthusiasm about the stockmarket in the 1990s, but after the Dotcom-Crash and many people who invested in "save, large, local businesses" like the postal service or the Telekom losing a lot of money, that has waned.

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