Should you buy a home now, or rent and invest instead? This guide uses actual historical data from 2008-2025 to compare outcomes across Bear, Normal, Bull, and Current market conditions.

1. The Framework

We compare two paths over a 3-year horizon and measure which leaves you with more wealth:

🏠 Path 1: Buy

• Make 20% down payment ($100K)
• Pay mortgage P&I + property tax monthly
• After 3 years: own home equity

📈 Path 2: Rent & Invest

• Invest $100K in 60/40 portfolio
• Pay rent monthly
• After 3 years: own investment portfolio

Net Position = Asset Value (Home Equity or Portfolio) − Cumulative Money Paid Out

The path with the higher Net Position is the financial winner.

Base Assumptions (Same Across All Scenarios)

Home Price	$500,000
Down Payment	20% ($100,000)
Loan	$400,000, 30-year fixed
Property Tax	1.2% of home value/year
Initial Rent	$2,500/month ($30,000/year)

2. Scenario Assumptions

We construct four scenarios from actual historical averages. Each represents a distinct market regime. (See Appendix for the underlying year-by-year data.)

Scenario	Based On	Mortgage	Home	60/40	Rent
🐻 Bear	2008-2011 avg	5.0%	-5.5%/yr	+2.5%/yr	+2.0%/yr
📊 Normal	2015-2019 avg	4.0%	+5.5%/yr	+7.0%/yr	+3.0%/yr
🐂 Bull	2012-14 + 2020-21	3.5%	+9.0%/yr	+10.0%/yr	+4.0%/yr
📅 Current	2024-2025 avg	6.5%	+2.5%/yr	+11.0%/yr	+1.0%/yr

Data sources: Home prices from Case-Shiller/FHFA via FRED. Mortgage rates from Freddie Mac PMMS. Stock returns from S&P Global. Rent growth from BLS CPI. See Appendix for details.

3. Full Calculation Example: Normal Case

Let's walk through the complete calculation using the Normal Case (2015-2019 averages) to show how the math works.

Normal Case Assumptions

Mortgage: 4.0%

Home: +5.5%/yr

60/40: +7.0%/yr

Rent: +3.0%/yr

Path 1: Buy

At 4.0% on $400K, the monthly P&I payment is $1,910.

Year	P&I	Property Tax	Total Paid	Home Value (EOY)
1	$22,920	$6,000	$28,920	$527,500
2	$22,920	$6,330	$29,250	$556,513
3	$22,920	$6,678	$29,598	$587,100
Total			$87,768

Home Value (Year 3): $500,000 × 1.055³ = $587,100

Mortgage Balance (Year 3): $377,960 (most early payments go to interest)

Home Equity: $587,100 − $377,960 = $209,140

Net Position (Buy): $209,140 − $87,768 = +$121,372

Path 2: Rent & Invest

The $100K down payment is invested in a 60/40 portfolio returning 7%/year.

Year	Rent Paid	Portfolio Value (EOY)
1	$30,000	$107,000
2	$30,900 (+3%)	$114,490
3	$31,827 (+3%)	$122,504
Total	$92,727	$122,504

Net Position (Rent & Invest): $122,504 − $92,727 = +$29,777

📊 Normal Case Result

Buy Net Position: +$121,372

Rent & Invest Net: +$29,777

Winner: BUY by $91,595

Why Buy Wins: With 5.5%/yr home appreciation, the $100K down payment controls a $500K asset that grows to $587K. Even though the 60/40 portfolio returns 7%/yr, it can't match the leveraged gains of 5× magnified real estate appreciation.

4. Results Across All Scenarios

Using the same calculation methodology, here are the results for all four scenarios:

Scenario	3-Year Net Wealth (Buy Path)	3-Year Net Wealth (Rent & Invest)	Monthly Payment (Buy / Rent & Invest)	Winner & Margin
🐻 Bear 2008-2011	−$53K	+$16K	$2,620 / $2,550	Rent +$69K
📊 Normal 2015-2019	+$121K	+$30K	$2,440 / $2,576	Buy +$92K
🐂 Bull 2012-14 + 2020-21	+$187K	+$39K	$2,342 / $2,601	Buy +$148K
📅 Current 2024-2025	+$43K	+$46K	$3,042 / $2,525	Rent +$3K

5. Takeaways

When Buying Makes Sense: Normal & Bull Markets

• Leverage amplifies gains. With 20% down, you control 5× your investment. When home prices rise steadily, your equity grows at a multiple of appreciation.
• Renters risk missing out. If you rent and invest, your portfolio may grow—but if you decide to buy later, you're paying higher prices.
• Strong job markets reduce risk. During 2015-2019 and 2020-2021, unemployment was low and incomes grew, making mortgage commitments less risky.

Example (2015 buyer): $500K home, $100K down → home worth ~$580K by 2018 → equity grew from $100K to ~$180K (+80%). Renter's $100K invested → ~$130K. Renter now faces $580K home prices. (See Appendix)

When Renting Makes Sense: Bear Markets

• Leverage works in reverse. Falling home prices can wipe out your equity—or leave you underwater, owing more than the home is worth.
• You're locked in. Mortgage payments continue regardless of job loss or income cuts, precisely when the economy is weakest.
• Renting preserves flexibility. Rent often softens in recessions. Liquid assets let you adjust, wait, or relocate as needed.

Example (2008 buyer): $500K home, $100K down → home worth ~$400K by 2011 → equity gone, possibly underwater. Locked into payments during peak unemployment. Renter stayed flexible with liquid assets. (See Appendix)

The Current Environment: 2024-2025

• Mixed signals. Slow home appreciation (~2-3%) + strong stock returns (20%+) = near toss-up between paths.
• High rates mean heavy commitments. Rates around 6.5% translate to significantly higher monthly obligations compared to periods with lower rates.
• Prudent approach: If income is stable and you find the right home, buying can work. Otherwise, staying liquid and waiting for rate cuts or clearer signals may be wise.

Decision Framework

Consider Buying If...

(See: Normal & Bull scenarios)

• You believe home prices will appreciate steadily
• Mortgage rates are moderate or declining
• You're confident you'll stay in the area for the foreseeable future
• You can comfortably afford payments even if income dips temporarily

Consider Renting If...

(See: Bear & Current scenarios)

• You expect flat or falling home prices
• Mortgage rates are elevated and may stay high
• You might relocate or your life circumstances may change
• You'll invest the difference and grow your down payment for when the right opportunity arises

Final Thoughts

In today's market—with elevated rates, modest appreciation, and uncertain direction—staying flexible is prudent. If you're not in a rush, investing your down payment while waiting for lower rates or clearer signals may serve you well. That said, if you find a home you love and can comfortably afford the payments regardless of economic shifts, buying still makes sense—just go in with realistic expectations about near-term gains.

Appendix: Historical Data

This is the raw data used to construct each scenario's assumptions. All averages are simple arithmetic means of the years shown.

Data Sources

• Home Prices: S&P Case-Shiller National Index via FRED
• Mortgage Rates: Freddie Mac PMMS via FRED
• Stock Returns: S&P 500 via FRED
• Rent Growth: BLS CPI Rent Component via FRED

Bear Case: 2008-2011

Year	Home YoY	S&P 500	30Y Rate
2008	-5.6%	-37%	6.0%
2009	-8.6%	+26%	5.0%
2010	-2.8%	+15%	4.7%
2011	-5.3%	+2%	4.5%
Avg	-5.5%	+1.5%	5.0%

Normal Case: 2015-2019

Year	Home YoY	S&P 500	30Y Rate
2015	+4.7%	+1%	3.9%
2016	+5.3%	+12%	3.6%
2017	+5.9%	+22%	4.0%
2018	+6.8%	-4%	4.5%
2019	+4.8%	+31%	3.9%
Avg	+5.5%	+12%	4.0%

Bull Case: 2012-2014 + 2020-2021

Year	Home YoY	S&P 500	30Y Rate
2012	+4.5%	+16%	3.7%
2013	+9.0%	+32%	4.0%
2014	+4.7%	+14%	4.2%
2020	+10.4%	+18%	3.1%
2021	+18.9%	+29%	3.0%
Avg	+9.5%	+22%	3.5%

Current Case: 2024-2025

Year	Home YoY	S&P 500	30Y Rate
2024	+3.7%	+25%	6.7%
2025	+1.2%	+16%	6.2%
Avg	+2.5%	+20.5%	6.5%

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