I knew people would disagree with me on this! But that's OK, because like I said, frugality is in the eye of the beholder. To steal the motto of Tom Frank, one of my favorite business writers: "The secret to happiness is low overhead."
But I probably should explain myself further:
With housing, I think it's easy to get emotional and too eager about owning your own place when it can be much more frugal to rent for a few years while you save up money and catch the housing market in a better part of the cycle. Yes, in the long run (10-plus years), it pays to own. But often (the current market, for instance), it is more frugal to rent for the short to medium term, especially if you'd have to use some unusual loan product (interest-only, adjustable rate, no down payment, etc.) to get you in a house to start with. Look at your house the way a potential investor would: Given how much you have to borrow to buy the place, could you rent it out for enough to cover the mortgage and other expenses? If not, the cost/value ratio of the house is out of whack. This is your classic housing bubble.
When people evaluate the benefits of owning, they tend to overemphasize the perceived benefits, such as the interest rate tax deduction, which may or may not even apply to them at their income level. Even equity is not as clear cut as it may seem: Even with a conventional mortgage, those first few years of payments are all interest, no principal. Also, selling a house involves a very big transaction cost if you need to move. Assuming you get big appreciation (which I would emphatically NOT assume for the next few years), a big chunk of those gains will be wiped out when you pay a real estate agent to unload the house for you.
People also tend to underestimate the real costs of owning -- I spent more than $10K on repairs and maintainence in my first year of owning my modest little rowhouse. With my appreciation gains have come big tax hikes. Fortunately, I knew this was coming and had budgeted for it.
When the market is out of whack like it is now in many parts of the country, often the most frugal thing to do is rent while saving the difference between your rent and what your mortgage would be if you bought. It takes discipline, but you can get a very good return on your investment.
The point is, look hard at the numbers and see what the truely frugal choice is before deciding to rent or buy. It may very well be buying, but it's better to do real calculations, IMO, than to assume the conventional wisdom applies to your case. Of course, you may decide that even if owning costs more, it's still worth it to you psychologically. That's fine! But know that you're paying for that feeling as well as housing, so it's not really much different than the warm and fuzzy feeling I get from a stop at Starbucks even though I could make my own coffee cheaper at home!
For me, it's very important that I never get in a bind with bills that I can't reduce should DP or I lose our jobs or get sick. That means always paying cash for our (good, used) cars and keeping housing costs at about a quarter of our take-home pay. Our cars aren't falling apart, and the house isn't in the 'hood. They just aren't as fancy as the bank would let us have. We invest in good insurance -- health, disability, life. We save in our emergency fund, in our retirement accounts, and in our nephews and niece's college funds. Beyond that, we treat ourselves: plenty of visits home to visit family, nice dinners out to celebrate special occasions, donations to charity, etc. This setup means that should something happen after our baby comes in November and I can't or don't want to work, we would be able to get by just fine.
I mean, I'm sure it happens, but I've never known a family to be driven to bankruptcy by throwing away baggies, using too many paper towels, or getting too many manicures. It always seems to be medical bills, oppressive mortgages and usurious car loans. So I try to do everything in my power to avoid those three things. Make sense?