Oct. 14 (Bloomberg) -- Unless you want to stay in a neighborhood for life, renting a home may make more sense.

With more foreclosures and huge inventories of unsold homes looming and mortgage rates held down by the government, the housing market may not stabilize for years.

It’s no longer a given that you will build home equity. The housing debacle may have depressed housing prices for a generation in all but a handful of areas.

Am I spouting American housing heresy? After all, can’t you still build wealth by simply buying a home and holding it? And with 30-year, fixed-rate mortgages dipping below 5 percent, isn’t your buy signal flashing “go”?

A rent-versus-buy decision is a complicated one. You will need to make some blunt assumptions and do some in-depth homework on the neighborhood in which you want to buy.

The first layer of your decision-making is the duration of your investment. If you are fairly certain you are going to be in a neighborhood for an extended period -- say you have a young family, like the local schools and have a secure government job -- check the “buy” category and calculate ownership costs.

Those facing relocation, looking to downsize or retiring should strongly consider renting.

It’s difficult to recoup all of your closing costs and down payment in a short period of time. This is the easy part.

Rent Versus Buy

Now comes some gnarly cash-flow analysis for those leaning toward buying.

Let’s say you were considering a $300,000 home, put down 20 percent, and obtained a 5 percent, 30-year fixed-rate mortgage. You are in the 33 percent federal-tax bracket and you will pay $7,000 annually in property taxes and about $1,000 for insurance and maintenance. Your total monthly payments are $1,945.

Comparing your purchase to a similar property renting for $2,000 a month, you come out ahead buying and holding for 30 years. While your actual cash outlay is much less for renting -- $583,267 versus $751,236 for buying -- once you figure in the tax benefits over three decades, you are better off buying.

The combination of appreciation, leverage and tax breaks makes buying the winner over 30 years. Instead of having paid rent and gained no equity, this example will show a net asset value of $526,770 for buyers. This, of course, assumes a positive annual gain in your home’s price.

This example assumes a 1 percent annual return rate, stable property taxes and federal write-offs continuing untouched.

Property Taxes

Yet times have changed and it’s unlikely you will have the same mortgage, expenses and write-offs for three decades.

Real-estate taxes are wild cards that few brokers will discuss. Since public agencies are mostly dependent on property valuations for revenue, they are hurting in this housing recession and may be crippled for years from depressed home values. I’m seeing this in my area where the primary school district alone is facing a $3.5 million shortfall.

The most dangerous assumption is that property taxes will remain static. Ask your broker for past real-estate bills and the fiscal shape of local taxing bodies.

Another flawed assumption is appreciation. You can still lose home equity.

Check on median property values where you are buying. A few states were relatively untouched by the recent bubble, such as Texas, Utah, Wyoming, Oregon, Pennsylvania, Tennessee and North Carolina. Home-value declines were the worst in Nevada, California, Florida and Arizona, according to the U.S. Census Bureau’s most recent American Community Survey.

Invest the Difference

Still want to buy a home? Then dig even deeper in your targeted areas.

How many foreclosures are pending? Are there any vacant homes? What has been the mortgage default trend over the past two years? Is there a glut or shortage of unsold housing units? You can find local housing inventories by contacting area realtor associations.

Frank Armstrong III, a Coconut Grove, Florida-based financial planner and author of “Save Your Retirement” (FT Press, $14.99), says home ownership “is no longer a risk-free transaction. This has been the assumption for 30 years, and it’s been rebutted.”

An unstable or declining neighborhood usually translates into home-equity loss for buyers, most of whom have no idea when an area has hit bottom.

There’s no shame in not buying and exploiting the hidden upside in renting, though.

The money you would have spent on maintenance, taxes and insurance can pay off credit-card bills or be invested in an emergency fund, retirement or college savings. I know that few people will look at it this way, but renting might be a chance to recover financially.

(John F. Wasik, author of “The Audacity of Help: Obama’s Economic Plan and the Remaking of America,” is a Bloomberg News columnist. The opinions expressed are his own.)

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To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net.

Last Updated: October 13, 2009 21:00 EDT