Also, buying last year had the added bonus of an $8,000 tax credit. Not a discount on your income, but an actual dollar for dollar credit (ie, come tax time, I add $8,000 to the refund amount). That's seven months of rent at my prior place. Not a bad deal. Thanks to the deductions from paying my mortgage (versus no tax deduction that I'd have gotten with renting), I saved just enough money on qualified income to fall under the first time home buyer credit limit. Worked out well.

Anyway, it definitely depends on where you live. Circumstances change drastically, even within a state. Even just outside of a main metro area. San Jose is cheaper than San Francisco. Beaverton is cheaper than downtown Portland. Westminster is cheaper than Denver. In some places, owning will simply never be an option. I couldn't afford a million bucks for a 900sqft home in San Francisco. Hell, I could probably barely afford rent.

Based on my personal experience, I would advise people to buy sooner than later. That is, I personally wish I'd have bought five or ten years earlier. On the other hand, I think I was also wise to wait until just the right time in my life and the market to buy and I think that's a wise path to take, too. You may be putting off the benefits of a home if you delay, but at least you're not making any commitments by paying rent, either. In the long run, I think that is the mistake too many people make. They feel the ticking clock and buy because everyone else says that's what adults do. That leads to buying too much and extending yourself and your credit too far. I know home-ownership is "the American dream", but I think it's a dream that you have to let come to you, when the time is right for you.

Please check my math: using your numbers and averaging to 7.5 percent per year, that would be a cumulative increase of (1.075)^5 = 1.44 = 44 percent increase.

Did your rent really go up 44 percent over 5 years? Where do you live?

As an additional data point, I rented a house with some friends in Beaverton for 5 years and the landlord never raised the rent.

I lived in a more expensive apartment than is typical, but there is no housing anywhere near where I am (only apartments). I don't know if proportional increases are typical all over Denver, though. By the end of the fifth year, I was tired of seeing my rent increase at triple the rate of my raises.

I do think for the near future, rent will continue to rise as more people decide to sit out of the real estate market (waiting for more price drops to occur). Ultimately even this should correct itself as people start buying houses again since they will grow tired of increasing prices and decreasing availability of apartments.

If you toss a mortgage into the mix, which is what I gather most people mean when they say "buy" a house - then yes, market fluctuations can matter a lot - but these are two very distinct things.

Unless I'm missing another aspect of potential impact, which is totally possible. I can barely tie my own shoes, sometimes. :)

When I asked a mortgage broker friend (Canadian) about this not too long ago, it was explained to me that yes you could lock in a rate for the "term" - but the "term" was 5 years, and after 5 years it would be adjusted depending on the prime rate, etc..... so from what I gathered you coudln't actually just get a plain old "25 years, x%" mortgage.

I'm not sure about other Commonwealth countries, but Canada definitely does not have this option. Our mortgages have a specific mortgage rate term (usually 3-5 years), separate from the life-time of the mortgage (usually 20-30 years; the 35 was/will be no longer be available). This means that interest rate fluctuations are more devastating when they rise for those who put little to no money down on their expensive housing purchases in Canada recently.

Amortization length of a mortgage can be up to 35 years for residential mortgages. 35 year amortizations were only eliminated for CMHC/insured mortgages.

I would contend that the system is more stable when borrowers are forced to consider the consequences of future interest rate increases.