For the average household, renting better than buying?

An interesting study to look at in greater detail later:

A new academic article in Real Estate Economics turns this conventional wisdom on its head. Using data from 1979 to 2009, the authors demonstrate that renting was the superior investment strategy for most of the past 30 years. Counterintuitive as the finding may be to some, it is actually quite logical. Unless someone possesses the cash necessary to buy a residence, he or she will be renting one way or another. The choice is between renting the property directly or instead renting the capital necessary to buy the property. The amount of capital to be rented is a function of house prices, while the bulk of a mortgage payment is interest, which is the rental payment on this capital. After 2 years, the typical 30-year amortizing mortgage balance has been reduced by less than 3%. This means that a household that took out a $300,000 mortgage with a 5% interest rate to buy a home has only reduced its mortgage balance by $8,600 after two years despite spending nearly $39,000 in total over this period.

Update: Not sure I agree entirely with this study. The basic question of rent vs buy comes down to whether or not you could make more money with the money you would otherwise use to pay for your mortgage/downpayment.

For many people though, I suspect that without the mortgage interest rate deduction (and given rent you pay on residential property is not tax deductible in the US), rent makes more sense financially than buying.