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> Since the tax-deductible nature of mortgages also applies to your landlord

Not usually true. Investment properties are not subject to mortgage interest tax deductions. http://en.wikipedia.org/wiki/Home_mortgage_interest_deductio...

They are deductible by another means (business expense). But you pay rent in after tax dollars. Imagine having a neighbor with and identical house--you both agree to swap and rent to each other. You would be worse off than sticking with your mortgage (if you rent to each other for $0, it works out the same as the homeowner deduction).

Why don't you ask someone who bought their house in 2006 about price stability? And then look at how far about historical norm prices still are.

http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-c...

Oops, I meant that as a reply to one comment higher.

Someone who bought their house in 2006 still has the same mortgage payment (actually, perhaps lower if they were able to refinance).

Buying things for the future (whether housing or cattle futures) does offer price stability and insulation from market fluctuations. It doesn't automatically make it a good investment; but stability is good, and it's perfectly rational to assign some positive value to it.

I was just trying to put things in perspective. There are perfectly rational reasons to buy a house. When the rents are higher than what a mortgage payment would be, it's a pretty reasonable thing to do for a lot of people, based on some pretty reasonable projections.

You can still disagree, of course. You can say that 1.5% growth per year in home value is too much to ask. You can say that rents will fall, therefore making your mortgage payment higher than rent. Or you can say that a 7% return is not good enough for you. Or maybe my analysis was wrong, in which case you can point that out.

>Inflation also nets out to zero, since both the borrower and the lender (and the landlord and the renter) are using the same currency. Unless you argue that home buyers are systematically better at accounting for inflation than bankers, of course.

Stranger things have happened. Bankers have been wrong before. You could say that home sellers were right when banks who loaned money to buyers were wrong in 2006. I think inflation is likely to be higher than most people think, because there's no politically possible solution to the government's debt problems other than inflating our way out of it, despite its previous record of being a reliable debtor. If I'm right, that will mean that home buyers are indeed systematically better at accounting for inflation than bankers (or more like they will turn out to accidentally happen to be right).

At any rate, if the cost of renting is close to the cost of buying, as it is in my town (it's about the same here except that you don't have to fix the roof, etc, if you're renting), then even if I'm wrong, I won't lose much money as a new homebuyer in the next year or so.

>The problem with buying a house is that it's a massive bet on your local labor market.

That depends on your job. If you're have some specialized job or you're in a small town, that's something to think about, but lots of people have jobs for which they would never have to move. Even if that is an issue, it also depends on how comfortable you are with being a landlord, and how many people you know who would make likely good tenants.

"Since the tax-deductible nature of mortgages also applies to your landlord, that factor nets to zero."

My analysis still holds: if your mortgage is less than rent, then you can do calculations based on the price from the down payment rather than total appreciation on the home.

How the mortgage payment ends up lower is irrelevant. All I meant by the mortgage interest thing is that you have to remember to adjust downward a little to account for that.

Home buyers are systematically better at planning for the long term than bankers, because most bankers don't plan to be working at the same bank 30 years from now - or, if they do, they don't expect to be held accountable for the loans they approve today in 20 or 30 years. Otherwise, what banker in the nation would offer 30-year fixed-rate mortgages at 4.25%?

Inflation plays a huge role with regard to timing and compared to the average mortgage rates of other owners/landlords. If you start a 4% fixed rate mortgage today and do not move anywhere in 10 years, you don't have to cover the cost of credit for whatever the interest rate at that time is (probably higher) because you don't have to reset/move.