In most of the country, though not in
S.F., Silicon Valley, West LA, Arlington and Seattle, the price of
housing is leveling off or dropping.
This takes the "investment" value out of buying a house. So now, the decision whether to rent or own should be more straight-forward.
In San Francisco, the prices I know are the ones I'll use. Substitute the prices in your area for the numbers I'm using.
A one bedroom condo downtown with 1000 sq. ft. sells for $800 a square foot= $800,000. To that you add Property tax of 1.14% $9,100 per year and the equivalent for casualty insurance. The property tax is deductible from your income tax and so is your interest payment of $44,500. Your payments on the mortgage are $50,000 per year. Your condo fees are $5,000.
Your total condo costs are
$73,200. Of that $53,600 are tax deductible. If your income is
$150,000 or more, you probably will pay no income taxes. That leaves
you paying out of pocket $19,600 for the mortgage and condo fees plus the opportunity
cost of $6,000 on your $100,000 down payment. If your income is
$100,000 then you are actually paying $18,000 in real interest and
property tax expenses that are not subsidized by the tax deduction.
At an income of $150,000 buying a condo leaves you out-of-pocket and opportunity costs of $25,600. If your income is $100,000 your out-of-pocket and opportunity cost is $43,600.
Renting a similar apartment in San Francisco would be $28 per square foot per year: $28,000 per year.
Summary: Buy a condo if your income is $150,000. Rent if your income is $100,000 and save $15,600 per year. Your $15,600 in 10 years will be over $200,000 at current interest rates.