[jyl]

Wayne, my 2c:

You need to specify an investment horizon - how many years.

Include transaction costs to buy and sell the house. Commission, fees, title ins, etc. These are very material , especially with a shorter investment horizon.

You need to make some assumption on appreciation, otherwise you're leaving out a major part of the economics. Here's one approach to appreciation - chart your region's house price vs time, draw a long-term trendline (>30 years) through the data, assume that the house price will return to that trendline by the end of your investment horizon. Currently, that means for an investment horizon of several years, the house price will depreciate; for a longer investment horizon, the house price will appreciate. Quarterly data by metro area available as Excel download from the OFHEO website.

The AMT issue should be answered. If AMT reduces the tax benefit of owning a house, that changes the economics.

P.S. I did a long post, > 1 yr ago, re OFHEO data for CA. Find via search. Had link to site + LT growth rate for CA house px. LTG was =< S&P500.