you started your post with two great ideas:
- you make money on the home when you buy "right",
- and despite what everyone else might say, a home is a primary residence, and not necessarily a good investment vehicle.
Many real estate professionals would have difficulty agreeing with those points, so I salute your straight-forward talk in that regard.
However, with respect to your buy-vs-rent analysis, I am going to disagree with your numbers.
Let's assume a house purchased in 2005 for $300K, with montly payment of $2K, inclusive of RE taxes and insurance. Let's also assume that house price is down 10%, i.e. would sell for $270K in today's market.
Let's calculate the net position of the house buyer.
I agree that the homeowner saves on taxes, but I disagree on the amount. In order to take a mortgage interest deduction, one itemize deductions and therefore must forgo the standard deduction. The standard deduction for a single filer is around $5000 (5150 for 2006, a bit less for 2005, a bit more for 2007). For married filers, the amount is double that.
Also, when itemizing deductions, INCOME taxes paid to state can be included. This would help someone itemizing. Unfortunately, New Hampshire does not have those, so this does not help a New Hampshire tax-payer who is itemizing.
Say the interest in the $2000 payment is $1800 (just like you noted). We have a deductible amount of $21600 per year. However, the standard deduction (assume couple) of $10000 needs to be foregone, making the EFFECTIVE deduction $11000.
Also, I disagree with the 35% "savings" for an average person. To save 35% on federal deductions, one must be making more than $300,000 in taxable in income per year! I would take a more conservation 25%.
So to recap, the ANNUAL savings in reduced taxes as a result of owning is only $3000, a far cry from the $7300 you claim someone would save.
- $3000 / year in tax savings,
- $2K mortgage x 12 = $24K / year in mortgage, etc (you forgot this line item entirely in your analysis),
- $30K on the sale, plus transaction costs (Ok, I will "waive" the transaction costs),
To recap, we have 3 * $3,000 - 3 * $24,000 - $30,000 = - $93,000.
The renter's story is very easy. We have one line item:
- $2K * 12 = $24 K / year in rent.
So to net, the buyer lost $21,000 more, a far cry from the gain of $92,000 you say he gained.