The Buy vs. Rent Conundrum

The reports suggest a housing market cooling rather than widescale implosion. While this would create conditions that are ultimately good for a long-term healthy market, it means that buyers and sellers need to readjust their expectations for the kinds of return to be had by buying a home.

"History over time shows that real estate is not a short-term investment and that the run-up in home prices is not normal, despite the activity over the past five years. Buyers and sellers need to adjust their expectations of what it means to buy a home," says Tom Stevens, president of the NAR.

Homeowners have seen their properties appreciate at mindblowing double-digit rates, but investors have forgotten that this is atypical. Since 1979, home prices have gained about 4.4% a year, according to the Joint Center for Housing studies. For sellers, that means it's no longer enough to jack up the price, put a sign in the yard and wait for the bidding wars to begin, even though many real estate agents across the country say it could take another six to 12 months for sellers to fall in line with lower prices.

For buyers, it could mean more choice at better prices. As the housing market softens, real estate speculators are unloading properties to realize projected gains, Stevens says. This is adding more inventory to the marketplace that he believes will take 12 to 18 months to burn through, and it should bring prices down in some areas.

In Defense of Rent

When weighing buy vs. rent, transience trumps the equity-building benefits of home ownership.

"If you're thinking of being in a location for the long run, you would want to establish the kind of stability and equity build-up that comes with ownership," says Richard DeKaser, chief economist at National City. "For someone moving into an area for a year or two, it's more of a straightforward financial calculation."