The all-American dream of owning your own home can make renters feel like second-class citizens. Even if you don't mind renting, you have to confront the many anti-renting myths that abound in this country.

And the pressure's been on these past couple years with low interest rates, enticing even die-hard renters to buy. But now that mortgage interest rates are climbing again, many would-be first-time homebuyers have to face the facts that buying a home is not always the best financial decision.

Doing the numbers
From a purely financial perspective, you can do the numbers to come up with a compelling reason to buy a home or continue renting. But many of the methods of computing these numbers differ and are slanted one way or the other.

Many mortgage calculators on the Web, like Quicken or eLoan, give you a rather narrow picture of how much better off you'll be as a homeowner. They don't take into account any money you might invest while you rent. If you want a comparison of the money you spend on the house vs. the down payment money you'd invest instead, you need to do a more complex calculation.

More advanced computer programs help you compare a 30-year investment in stocks and bonds to a 30-year investment in your house. When I ran the numbers, using spreadsheets created by Mitchell Levy, author of the book Home Ownership: The American Myth, I discovered that the current interest rate made all the difference in whether home ownership came out better. The spreadsheets help evaluate whether owning a house or renting and saving/investing are going to be more lucrative for you in the long run. Contact mlevy@mythbreakers.com or http://www.mythbreakers.com to obtain the spreadsheets for $32.50.

Debunking the myths
Many myths surround the rent-vs.-buy question in this country. The National Multi Housing Council (NMHC) is trying to debunk some of these myths on its Web site. I recommend that every renter read the articles posted on this site before diving into the world of homeownership.

• Myth No. 1: I'll pay fewer taxes. The biggest homeownership myth in this country is that owning a home is huge tax break.

"Renters already get the standard deduction," says Jack Goodman, Chief Economist for the NMHC. "If your mortgage interest and other itemized deductions do not go above the standard deduction amount, you don't get any tax advantage."

The current standard deduction for a single head of the household return is $6,350. For a couple filing jointly, it's $7,200.

Even if you do have a larger deduction with a home, it is only a deduction from taxable income.

"Just because you're paying less taxes, doesn't mean you're necessarily better off owning a home," says Levy. "The tax break certainly helps homeowners, but it may not be worth it if you have to spend $1 in mortgage interest in order to save 28 or 33 cents in taxes," depending on your tax bracket.

• Myth No. 2: I'm just throwing my money away on rent. It feels like a terrible waste, giving your money to some landlord every month. But what about throwing away money to the bank?

"Most of what homeowners pay the first five years is interest," says Goodman. "You're not paying down principle; you're not building equity. That's money down the drain too."

Since nearly half of all homeowners move in the first five years, you need to compare the cost of renting to homeownership over the first few years.

• Myth No. 3: Putting equity in my home is a smart investment.

For those renters who are miserable savers, a forced savings plan (a.k.a. the mortgage) can really help. Instead of paying your rent, you pay your mortgage and build up equity in your home. When it's time to retire, you can cash in on your house.

But is this really a wise investment strategy?

"Do you want to put all your eggs in one basket?" asks Goodman. "It's like putting all your wealth in a single stock in the stock market. It's risky."

Is your house going to appreciate as much as the stock market, for example? If you look at the past 10 years and compare appreciation of homes to the stock market, you'll see that real estate has performed dismally compared to the huge gains in the stock market.

We all know that the stock market isn't going to always perform that well, but like any investment, real estate markets can go up and down. A desirable neighborhood that goes up in value one year can take a dive in subsequent years.

Any good investment counselor will tell you that diversifying your portfolio is the best antidote to these kinds of risks. So putting all your money in your house isn't exactly the best solution to your poor saving skills.

• Myth No. 4: I've got a great job, I won't need to move.

You may plan to stay put for a long time. But what if you lose your job and need to relocate to find another one? If that happens, the cost of reselling your home can be daunting. The real estate commission itself is hefty sum that you don't want to pay if your house hasn't appreciated significantly.

The NMHC explores the relationship between unemployment and homeownership in their publication "Home Ownership and Unemployment in the U.S."

"It's intuitively plausible that there would be this link between homeownership and employment," says Goodman. "You are more locked into the market because you've got this big cost involved if you sell your house."

Even if your house doesn't depreciate, the real estate broker, lawyer, and inspection fees can add up to quite a sum.

"The round trip into and out of homeownership can be as much as 10 percent" of the home sale price, says Goodman.

The NMHC study points out that recessions are often the cause of job loss. So if you lose your job due to a bad economy, you may find your house very difficult to sell.

Not a financial decision
Even when you come to terms with the wisdom of renting, you may decide that you need to buy a home due to your own subjective feelings and lifestyle. This is often the reason renters take the plunge. Renting is just a drag for some of us, and being responsible for your own space can be enticing.

If you want to buy a home for personal reasons, by all means, go for it! You don't need a good excuse. But if you just want to invest your money smartly, do the numbers yourself or talk to a financial adviser.

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Copyright 2000 Leta Herman
Distributed by Inman News Features

Copyright Information: With permission from the author