AGAINST THE GRAIN: In Sacramento, Calif., house prices have soared so fast that even though they could afford to buy, Michael and Cindy Choe, with son Jason, choose to rent
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Of course, there are trade-offs either way. As a renter, you don't pay transaction costs, property taxes, insurance and maintenance. But you also miss out on a tax deduction for mortgage interest and property tax--often a substantial amount. Then there is the mother of all arguments for buying: building equity. Last year 25 out of 50 states plus the District of Columbia saw double-digit appreciation in house prices. That's a heck of a return. But it's also backward-looking. If interest rates rise, the housing market will almost certainly slow. And in that case, the gap between renting and buying will start to close.
This reversal may be in its early stages now, as rents have picked up in places like the capital and South Florida. But we have a long way to go before we reach economic equilibrium in the hottest markets, leaving renters at least temporarily in a good position. Says Choe: "Right now, I love my rental." --With reporting by Sonja Steptoe/Los Angeles