housing hypotheticals

Just wrote a new blog post for work and thought at least the first half was worth sharing here.

This seems like it should hardly come as a shock, but newsflash! from Seeking Alpha: Home prices have increased more rapidly than rents, it's significantly cheaper to rent than to buy (not even taking into account the costs of taxes and insurance (albeit also not factoring in that mortgage interest is tax deductible, I'll give you that)). Conclusion: Financially, there is no motivation to buy a home aside from price appreciation. Thus, in a market where homes are depreciating in value (i.e. the current one (in fact, the Wall Street Journal reports that price declines accelerated in 4Q2008)), it is illogical to buy a home.

Now, I know what at least some of you are thinking: People should buy houses because they want a home, not a piggy bank. And you know what? I agree. However, in an environment where unemployment is seeing a rapid uptick with no real end in sight? Sorry, but that argument just fails to cut the mustard anymore.

As a 20-something renter in today's economy, if I get laid off, I can give my 30 days notice, move in with my grandma in sunny California (she always says I don't visit often enough), and live rent free without doing any damage whatsoever to my credit while I search for a new job. Not too shabby.

As a homeowner in the same situation? Well, I can put my house on the market and/or try to rent it out...

Guess how that story ends.

Long story short, with unemployment a very real threat, the prospect of homeownership grows increasingly analogous with that of foreclosures and/or bankruptcy and a seriously crippled FICO score. Until the job market stabilizes, home sales—new, existing, foreclosure, doesn't matter—will remain anemic at best. That is, unless mental illness is far more prevalent in the U.S. than I've given it credit for, which is entirely possible.