Patrick:

I put this together at home.  If you want to post it on your site, please feel
free to do so.  Your site provides a great rebuttal to the normal media hype,
bs, and lies of the NAR.  Thanks for the dedication.

Homeowner vs. Renter:  Explain to Me Why I Should EVER Buy a House?
 
Am I missing something?  I am not an accountant but I do have a brain.  It
looks like homeownership is nearly always bad for the buyer over the long term
if housing is an investment.  If you treat housing as a shelter, I would be
wealthier if I just rented.  After all, renting fulfills the basic need of
shelter as well. 
 
If prices come WAY down, it may become better for the buyer but as can be
seen, they have to drop far.  Furthermore, why would I give up renting in a
good neighborhood to own in a bad one?  I do need to think about the quality of
my family's life.  The status as a "homeowner" does not guarantee
that my family will be better off despite what the press, business, the liars
at NAR, and prior generations have to say about it. 
 
Before you begin, please consider my assumptions:
1. I gave the homeowner a constant tax break on the interest over 30 years.
This is a significant advantage for the homeowner because the tax break will be
less as time progresses because the loan is paid down over time.
2. I gave no other tax breaks for the homeowner but there might be others.
3. A $400,000.00 home is about a 900-1000 square foot two bed/one bath newer
home in the Sacramento area in one of the BEST neighborhoods.  Even now, that
is the going rate for the premier neighborhood despite the housing downturn and
may even be a little cheaper.
4. The rent of $949.00 is for a one bedroom one bath 800 square foot apartment
in a great neighborhood in Sacramento.  The median rent price in Sac for a
renter is much lower.
5. I assumed a 6% mortgage.  A rather low rate when compared to historical
rates.
 
A comparison:
 
Homeowner (Indentured Servant)
$400,000.00 Purchase Price (2008)
$ 20,000.00 Down Payment
$380.000.00 Financed at 6% fixed over 30 years
 
$    2,278.29 Monthly Payment: Principal and Interest
$      333.00 Average Monthly Maintenance-1% of pur price ($400,000.00 x 1.0 percent divided by 12 months
$      400.00 Monthly Taxes: 1.2 % of purchase price in Sac County ($400,000.00 X 1.2 % of purchase price)
$      200.00 PMI since less than 20% put down on purchase price
$    3,211.29 Monthly cost of buying a 900-1000 Square foot home in a great Sacramento neighborhood.
 
$       760.00      Tax Break for homeowner
                    $22,800.00=380K X 0.06 interest=interest paid during first year of loan
                    $22,800.00 divided by 12=$1,900.00 monthly interest
                    $1,900.00 X 0.40 (percent tax bracket)= $760.00
Caveat: As said above, the homeowner will not get this large amount in an
interest deduction over 30 years every year because as time progresses the
interest deduction will be less due to the fact that there is less interest
generated as the loan gets paid off.  These numbers have made the $760.00 write
off constant for the full 30 years.
 
$     2,451.29: real monthly cost of homeownership after tax break.
 
Renter (That Doomed Short-Sighted Lower Class Soul)
$       949.00 Monthly Rent for 800 Square foot Apartment in a great Sacramento neighborhood
$     1,502.29 Difference saved between $2,451.29 real cost of home ownership-$949.00 rent.

Homeowner Asset After 30 Years (2038):

Scenario One

$    400,000.00 value of asset at date of purchase in 2008
$    450,741.10 Home Value in 30 years (2038) at 0.4 percent inflation adjusted (Robert Shiller).
$    400,000.00 Amount borrowed to acquire asset
$    440,185.12 Interest or cost to borrow
$   -389,444.02 Homeowner's wealth

Scenario Two

$   400,000.00 value of asset at date of purchase in 2008
$ 1,293,200.80 Home Value in 30 years (2038) at 4.0 percent rate of return non-inflation adjusted.
$   400,000.00 Amount borrowed to acquire asset
$   440,185.12 Interest or cost to borrow credit
$   453,015.70 Homeowner's wealth

Renter After 30 Years (2038):

Difference in monthly mortgage payment savings invested over 30 years:

*Invested: at 6 percent return:                   *Invested at 8 percent return:
Monthly Deposit for 30 Years of $1,502.29         Monthly Deposit for 30 Years of $1,502.29
Interest Rate of 6.000 % compounded Quarterly     Interest Rate of 8.000 % compounded Quarterly
With an Initial Amount of $20,000.00:             With an Initial Amount of $20,000.00:
Final Savings Balance: $1,619,336.52              Final Savings Balance: $1,868,257.77

*I have not considered taxes.  Why?  Because if I invest these funds in a SEP
IRA I am not taxed until I take them out at retirement.  Furthermore, the above
numbers are quite conservative.  I would be willing to bet that 10% would be an
easy return over 30 years in a conservative Vanguard Index Fund.  Factor out
taxes on the capital gains, at about 2% and you still get an 8% return. 

Conclusion:
 
-The renter could pay cash for the same house and have a significant chunk of money left over. 
-If you adjust for inflation, the homeowner is significantly WORSE off.