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.

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.

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.

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.

>> 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.