There's nothing like a housing slump to challenge the notion that buying a house is smarter than renting.
Even in a rising market, there are times when shelling out monthly rent can make more sense than a mortgage payment. Add the anxiety generated by a down market, and all bets are off.
"When you live in a house whose value goes down over the short term and you have a small down payment, then you can get stuck," noted Holden Lewis, who follows mortgage issues for Bankrate.com.
At the very least, you could end up paying more to own than you would to rent. You're facing a crystal ball situation. How long do you think you'll stay put? How much do you think prices will go up - or down?
Like any fortune-telling exercise, the predictions are no guarantee.
But plug in some assumptions about the current housing picture and you get a pretty startling result.
According to The Sun's calculations, it could take more than nine years to come out ahead of renting if you buy the average-priced house in the metro area. And that's with all those fat tax deductions for mortgage interest.
If you want to sell and still come out ahead, tack on another 18 months or so for Realtors' fees and closing costs that can easily run $20,000 on the average house. And it's an extra year on top of that if you consider that, as a renter, you could probably earn at least 4 percent a year in interest on the money you didn't need to use for settlement and a down payment.
These numbers are eye-opening, since the typical homeowner moves after six years.
The viability for renting isn't simply about the slump in home sales. The real estate boom pushed home prices so high that rents - which didn't skyrocket - are more affordable by comparison.
This nearly decade-long lag before the financial balance tips in favor of owning suggests that something will have to give, said Mark Zandi, chief economist with Moody's Economy.com. Home prices could drop, rents could balloon - or both.
"Some parts of the country, buying is still preferable to renting, but in many other parts of the country, it's not," Zandi said. "Really do your math."
He doesn't think Baltimore is one of the markets where buying is attractive in the short term. Economy.com is predicting a 10 percent drop in the region's home prices next year followed by a flat year in 2009.
But there are other considerations besides big-picture forecasts and averages for the metropolitan area. That's why you'll want to do the math yourself. You can find many rent versus owning calculators online, including the one The Sun used at eloan.com.
The figures we plugged in might not hold true for you. Here are the key things we assumed:
Five years of stagnant home prices, followed by increases of 4 percent a year - the region's average between 1979 and 1999, according to the National Association of Realtors. (You might think we're being unreasonably gloomy, but Economy.com's prediction of price drops is by no means the most dire one.)
You are average, average, average. You would either rent an average apartment - just over $1,000 a month in the metro area - or buy the average house, which last month sold for $308,000. Your marginal income tax rate is 25 percent, which is what a married couple would pay if they made the average household income of about $85,000.
You would make a 5 percent down payment, typical for first-time buyers even in this tighter lending environment, said Richard Muller, owner of Northstar Mortgage in Ellicott City. Your loan, meanwhile, would be a 30-year mortgage with a fixed interest rate of 6 percent, and you'd pay mortgage insurance because of the small down payment.
You'd pay average closing costs, average maintenance costs and average property taxes.
Change some of the variables, and the story does, too.
Say it's a choice between the average house and rent of $2,000 a month, twice the average. You'd be paying nearly $2,500 a month on the house - $1,800 in principal and interest, plus taxes, maintenance and the rest - so the rental savings no longer look so enormous. If prices don't drop, you'll be ahead in two years.
Even stacked up against average rent, owning would look a lot better if - despite all predictions to the contrary - the housing market stages a quick turnaround and we get average price growth from here on out. You'd need less than two years to break even, according to our estimates.
Increasingly, vacant homes in this market are being offered both for sale and rent, because sellers want to stop paying two mortgages. When agents representing such homes ask for credit reports on interested renters, Ryan W. James of First Horizon Home Loans in Timonium said he also pre-approves them for a mortgage so they can compare the rental costs with the principal and interest payment.
"A lot of times, it comes in right on the money," said James, who finds that at least 10 percent of the would-be renters wind up buying.
Emma Barth, a registered nurse who recently moved to Baltimore to work at Johns Hopkins Hospital, went on a frantic search to find something below $200,000. Now she's looking leisurely - because she moved into an apartment. Though she still wants to buy, she'd rather take her time.
"The nice thing about living in an apartment is if something goes wrong, you can always call maintenance," said Barth.
Real estate agents think this is a great time to buy - rather than rent - because sellers are willing to drop their prices, offer closing-cost help and jump through hoops to get a deal done.
"By the time people come to that realization, we're probably going to be back into another seller's market," said Joseph T. "Jody" Landers III of the Greater Baltimore Board of Realtors.
Pleasure of owning
Here's another consideration: Even if buying costs more than renting, at least for some period, you might rather own, calculations be darned.
"For a lot of people, there's so much personal pleasure involved in owning a house," said Lewis, of Bankrate.com. "There's that whole emotional component."