Buying a house, or not

There is lots of advice out there to help people who are trying to decide whether or not they should buy a home.  There are pretty big extremes on the issue, on one hand you have construction companies in the US 5 years ago who were happy to convince people with net incomes of $20,000 to buy houses worth $500,000 and for some reason thought this wasn't going to cause any problems.  On the other hand you have articles like this which basically accuse anybody currently owning or considering owning property of being a moron.  The gist of the 'just rent, why would you buy?' argument is that real estate is so overpriced due to competition that you would be much better off financially just renting for your entire life, particularly since it makes it so much easier and cheaper to relocate for whatever reason.  Buying houses is portrayed as a insanely expensive way to convince the world you are a grownup now that is completely unjustified.  Buying houses is sold along the lines of "What, you want to rent forever, like a broke student?"

It turns out that neither side really makes any sense.  After reading this article I went ahead and redid the numbers on purchasing my condo a few years ago and came to the conclusion that buying the condo has resulted in a steady 5% return on investment every year just based on the (condo fees+taxes) - (cost of rent) formula completely ignoring appreciation.  The place has also gone up in value a lot more than inflation so clearly for me the investment was a fantastic choice monetarily.  Obviously buying real estate is good if you can just buy it then, so the real problem is when people buy property with a low or nonexistent down payment and get reamed by interest over the next 25 years.  Given that it is safe to say that the majority of home purchases are terrible choices from a strictly financial point of view.  Thing is, that is completely irrelevant when you consider what the money would be spent on otherwise.

What exactly were those people buying homes with 5% down going to do with their money otherwise?  They clearly are in the market for status boosts so most likely they would instead spend their money on an expensive car, a huge TV, exotic vacations, jewelry or other conspicuous consumption.  The question is not whether buying a house with no down payment is a good idea but rather whether or not that purchase is better than trying to buy status with the other methods available.  The answer is rather hard to predict on a personal level because we don't have good benchmarks for how much status is gained from particular purchases that we can plot against price but it is clear that viewed in this way buying a house is much more of a murky business.  The best of all worlds is probably to rent a home for a long time and tell everyone you own it while simultaneously spending all your free cash on Porsches and Cancun vacations.  The whole house of cards comes tumbling down if anyone figures out you are lying about home ownership but as long as you are good at bluffing you can rack up big status for minimum investment!

This is a particularly North American affair of course because across the pond renting for life is considered a pretty normal thing to do.  Owning a house is just not the way everyone expects to live so people who do so presumably are a lot more interested in actual ownership and less interested in other people's reaction to their ownership status.  Of course if you really, really want to own a house and don't have the cash I hear there are some pretty great properties in Detroit that you can have for a couple grand... though impressing your friends might not be part of the bargain.