Is this a typo and it should be “Schweiz” instead of “Schweden”? If not, why the random comparison against Sweden?
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It is a comparison between Sweden and Switzerland. You can just ignore the green line.
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Same in the lost decade on stocks (1999 to 2009).
But it wasn’t a 33% drawdown but 50%+
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Easy to forget that if SNB rate goes to only 2% - still incredibly low vs historical rates - mortgage rates become ~3% vs ~1% today. That triples the cost of owning that most people count on when deciding to buy. The return in the example user137 shared goes pretty much underwater
You can fix a 10 year rate, by the end of which you should be close to having 35% of purchase price paid off, but the very big doubt is whether you can still sell for the same price. The buy vs. rent decision is likely very different for the new purchaser with the higher rate.
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That is not true. The Decade from 2000-2009 had a real return of -13%.
If you bought a house in 1990, you were in the negative for more than 25 years on a leveraged asset. This doesn’t even consider the added idiosyncratic risk of a single house.
There wasn’t a single period in the stock market where you would have been in the red for so long.
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Some Japanese might disagree…
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Luckily the Japan stock market isn’t the whole stock market.
Indeed, there are and always will be portions of the stock market that have periods longer than 25 years in the red.
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I think that sometimes it should be better not thinking only on how to save 30-40k in 10 years, where the market is going (that nobody knows), but when I have a landlord, I cannot install AC and live with 30 degrees in the house, they don’t repair anything unless you call a layer, if nobody is respecting the rules, nobody cares…
I think the quality of life is more important and I’m not talking about buying a 100k car.
If I need to work 1 or 2 more years, I can bear with it…I’ll buy a house 
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My landlord is a company and they always fix everything. And pay for it. Air conditioning? Come on, just rent a place that already has it.
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It’s not just for that. Unless the house market goes totally south,I did some calculation and in my case I will some some money, plus (more important for me) I would feel really uncomfortable to leave >300k (in addition to what is already invested) in the stock market…I call it diversification.
Switching back to the AC/repair topic…drill a hole in the wall for the cat: priceless 
That’s unlikely that the numbers of ownership beat rent, unless you use mortgage. So somehow you sleep better owing 1’200k to the bank than having 300k in the stock market? That’s the opposite of diversification. If you had 3’000k capital, I would understand putting half of it in real estate. Maybe you only need 300k to get the mortgage, but your full exposure is the full value of the house. So again, I get putting 50% in real estate, but many people invest 500% of their capital in real estate, which I find quite a gamble.
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In some cantons it is simply forbidden to have AC for housing unless you need it for serious reasons so you might be out of luck.
Interesting discussion, thanks for that
The mortgage will be 850k and the cost of the new house 1.2M
I have invested (considering 3a) around +200k, so taking your example, a bit more than 50% in real estate.
My reasoning is maybe too simple, but if the stock market crash 50%, I will see the money after long time, while the house may even increase as it’s showing your graph from 2018 post, and as I mentioned, in 10 years I will save money (considering renting that house), plus I can sell the house (not easy, I know) if the calculation/situation after 10 years are going to change.
After reading a lot of literature, I believe in a bigger stock market crash (US) than an house market crash (CH).
It’s exactly the opposite (for me). Renting the property I’m buying, it will cost me more than buying (with the present interest rate).
So it will always go up like in the last 10 years? If you don’t see a problem in the stock market right now, please explain why
I wouldn’t put it like that. It depends on the particular investment and enter/exit time. I could imagine if someone bought a house with mortgage in 2000, he could have achieved a higher return than if he invested in the stock market (real estate market was in a slump, and stock market in a bubble).
That’s assuming that rent, the value of your real estate and the mortgage cost stay the same. Many assumptions. Moreover, you have to consider the alternative cost of having the collateral locked. Instead it could be bringing you returns from the stock market.
Your house is worth 1.2m, but your net worth is only 350k, correct? You’ve invested everything in real estate, and even more (the 850k money that was lent to you). You’re about 340% invested in real estate, if I read your numbers correctly.
Regarding the potential risk, think about it like this. If you invest 350k in the stock market and it drops 50%, you will just go on with your life, wait for the recovery. On paper you became 175k poorer, but you don’t need that money right now.
Now if that 1.2m house tanks 50% (I know, not possible, right?), the bank will come and say: ok you owe us 850k, the house is worth 600k, we count 480k (80%) as collateral, so now please repay 370k so that you’re under 80% again. But your net worth is now -250k, so good luck.
Or imagine you pay 1.2% interest on these 850k, which is 850 per month. And now the interest rate goes up to 6% (I know, unimaginable). Suddenly you have to pay 4250 per month just to cover the interest.
These are some serious risks that could potentially ruin you financially.
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I scrolled through this document and haven’t found any numbers for real estate. Could you post some screenshots of the relevant bits?
Would be nice to see trailing average for the last 10 years. I guess in the last 2 decades we would see an acceleration.
But OK, let’s say it’s 1% of real price increase. Then add 3% return from rent (or imputed rent if you live there yourself), you get 4%. Then let’s say you maintain a leverage ratio of 2:1 (debt to equity) at a cost of 2%. This elevates your return to 10%. This is already competitive versus stocks. Of course, operating at a leverage comes at risk, but it’s realistic and possible to maintain it for decades, whereas for stocks long term leverage is, as far as I know, unheard of and impossible to maintain (too high volatility).
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True.
For some part of the calculation I used the one everyone is using (Home Rent or Buy Calculator - moneyland.ch)
I considered 15 years (you cannot do it for 10 years…),
0.99% interest (this part is complicated…because if you chose Saron, etc),
350k downpayment,
12k Annual supplemental and maintenance costs (that to me sounds too much for a brand new house…that I would say for the first 10 years you won’t touch it, so I would consider half, but I cannot change it),
3867 ammortization (that in my opinion is wrong, but I cannot change it),
21k inputed rental value(70% of 2500),
8415 Property expense tax deductions,
0% Annual property value increase as a %
2500 Monthly rent due
“Buying your home will work out CHF 48,534.50 cheaper than renting over the relevant time frame.”
Playing with the different parameters, you can see big changes, like the"Annual property value increase" or the “Imputed rental value”
This depends on the way you think…market crash or not, and, in addition, if you pay 700 to the bank instead of 2500 to the landlord, you can use the rest to invest each month, and in case I need it for the house, I can deinvest (if and when necessary). The 2500 are gone instantly.
1.2M correct, 350k is only the downpayment. I have +200k still invested and the net-worth is not only what mentioned.
I know this is scary, but if the stock market can tank 20% in two months (like 2020), the house market would be way slower, and it’s true also for the recovery (so good for stock, not good for real estate).
That’s why I’m looking also for Insurance (Swisslife) for the mortgage, so there are no fees and you can close the mortgage anytime.
The bank are doing the calculation with 5% as worst case scenario, so you can sustain it.
Thinking about real estate in US, now it would be crazy to buy, because they are in a real bubble.
If you look at 2008 with the subprime, the US real estate market collapsed, but strangely CH was not so much affected.
This is interesting as well:
https://en.comparis.ch/immobilien/preisentwicklung
For most of the people in this forum, the SNB won’t change the rates and they will stay negative for long time.
If it goes to 6% that means quite certainly a market crash and not only a bear market.
If it gets to even 3-4%, I assume it won’t happen in 5 years, so that means I can sell the house or reduce the mortgage.
I think that this brainstorming is quite helpful. Unfortunately nobody has a crystal ball
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I’m not the one talking about a crash, but Micheal Burry, Ray Dalio, etc
Take a look to this one (really interesting):
I mentioned “to diversify”, because the downpayment+ammortization is less than my 50% networth.
I was really close to buy a 60k car. That would be a bad idea for sure. “Buy” a property with an outlook of 10-20 years, I would say it will be pretty hard to state now: “for sure it’s a good idea” or “for sure it’s a bad idea”
To be honest I consider 50-50 
At the time of writing S&P 500(*) trailing 12 months P/E is 31.31 which is crazy high. 12m consensus forward P/E is 22.29 which is also very high. The respective earnings yields are 3.1% and 4.4%.
I agree with the sentiment of diversification but I am not sure that if Grantham analysed the Swiss real estate market he would have many more positive things to say than he does about stocks.
In your example, you are considering buying a property with 2.5% gross yield (2500/m rent) before tax on hypothetical rent or maintence and not counting purchase taxes. I would assume net profit is 1-1.5% before interest costs (?)
On top I undestand you would need to borrow more than your NW at ~1% rate, which does not leave much gap vs. net profit. Leverage boosts return if the borrowing rate is less than the return on an asset, the opposite is also true
If inflation stays permanently low and SNB does not increase interest rates it would work out. Otherwise the challenge could be trying to resell at the same price (see my post above)
(*) P&E data
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