In fact, I did exactly the same thing you spoke about years ago, in terms of saving money by renting (plus living below my means) — then bought a house I liked a lot (in an area where homeowners are financially strong).

Where I’d disagree is, first, boiling the decision to buy a house down to a matter of intelligence (i.e. is it smarter?) I believe buying a house is about fulfilling people’s needs and planning to meet those needs: personal choice and financial planning.

Second, in the scenario you outlined, you mentioned going upside down. That’s a possibility in all investments from stocks, to gold (and I have a number of articles on this blog about avoiding negative equity). But I disagree with the assumption that any home you buy in this market must go upside down.

Home prices are fueled by jobs, wealth, supply, and government regulation. I wouldn’t underestimate the last point in Silicon Valley, especially if you’ve ever sat in on a planning commission meeting.

There is currently weakness in the low-end (where most short sales, etc. are happening, particularly pockets of SJ) and upper-echelon markets (where over-eager investors have gotten bitten), but the four factors above have led to remarkable stability in the face of a national panic.

I don’t know your financials, nor the type of house you would have planned on purchasing, so I can’t comment on your situation. I do have another article titled When Not to Buy a House that comments on some of the situations when people should hold off if they’re considering buying a home (it’s linked above as well).

But I go back to my point that real estate (whether renting or buying) is a personal choice about meeting your own needs and wants — not a contest to see who’s more right.

This is something only individuals and their families can answer for themselves.

Renting + Saving what my mortgage would be on a comparable home are building interest bearing equity at the rate of $20,000 a year, increasing every year.

Renting for the past 4 years at the same price as a mortgage net me $89,000 hard cash money.

If I had purchased I’d have significantly less equity in a home about to go upside down for the next 5-10 years in this cyclical downturn made worse by subprime lending.

Is renting always smarter? No, but neither is buying at the peaks in cyclical markets.