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Is renting a home right for you?

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Though home prices have dropped in recent years, renting remains a comparatively good deal in many places, according to data from Moody's Analytics. In some cities, such as Honolulu and Cleveland, it's become even cheaper to rent rather than own in the past two years (see chart at left).

Some renters are using their flexibility as a tool for selling high and buying low. Mark Kiesel, a managing director for Pimco in Newport Beach, Calif., anticipated a drop in home prices and has been renting since he sold his home in 2006. He cites multiple factors – high unemployment, tough lending requirements, and large inventories of for-sale homes – as reasons why it's better to be a tenant than a buyer these days. "I believe prices will fall another 10 percent and as such I continue to rent," Mr. Kiesel said in an e-mail. "I likely won't buy until 2011-2012."

Homeownership still has advantages

Financial planners still see value in homeownership. Stephen Lovell, a financial planner and real estate broker in Walnut Creek, Calif., says high-income earners reap big tax benefits by deducting mortgage interest. Homeowners build equity in rising markets. Some also benefit intangibly from the peace of mind and pride of homeownership, he adds.

Homeowners, however, aren't the only ones reaping tax benefits. Renters in certain states qualify for tax credits. Example: Maryland renters who are disabled, low-income, or over age 60 can receive state tax credits worth up to $750.

Financial advisers say would-be renters should weigh various factors. Those who plan to stay put for five or more years and have the means to grab a good deal might be better off buying a home. Those in an overpriced area might do better by renting.

Even advisers who see value in owning also see renting as a savvy strategy in some cases. In July, Mr. Lovell advised a couple on the verge of retiring to consider selling their home and renting, because their income was low and their mortgage interest deductions were nominal. He says they'd do well, as would others who are pinched financially, to boost cash flow by liquidating their home equity.

"If you are trying to optimize the return on your money, I don't think homeownership is a good idea," Lovell said. "It makes sense for emotional reasons and it's not an unreasonable investment, but I wouldn't put it at the top of the list of ways for optimizing money."

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