It has long been an article of faith among Americans that homeownership is a sure path to financial stability. But with home prices in big cities such as Phoenix and Miami sitting at roughly half their peak 2006 level — and in major markets overall, down 28% — plus a lackluster economic outlook, does it make any sense whatsoever to buy a home now?

The answer is the old one: It depends on where you buy and how long you'll stay put. These days, however, it's really true. (Bing: How long, on average, do buyers remain in their homes?)

The time when you could buy a home and be assured of a windfall when selling two years later was an aberration of the housing bubble, which resulted from annual price appreciation of as high as 10%. Now, expecting to sell at a tidy profit within even a decade may be risky.

It will probably take at least five to seven years for buyers to make back the costs associated with a home purchase. Closing fees can total 10% of the purchase price.

In areas where prices are still declining, such as Seattle — down 4.1% in October compared with October 2009, according to the most recent Case-Shiller Home Price Index — and Atlanta, down 6.2% in that time frame, buyers must be even more conservative about their time horizon.

What's your home worth?

Still, with interest rates at historic lows and prices so depressed, cautious and realistic house-hunting now can be a good move, says Stan Humphries, chief economist at real-estate website Zillow.com. He says home values could hit bottom early this year.

"Renting is getting more of its day in the sun, after a long period when buying a home had more cachet," he says.

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Shelter versus investment
"It's a perfect time to buy, if you can get financed," says Kevin Bennett, 32, a computer entrepreneur by day and a waiter by night.

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Bennett and his wife, a pharmacy technician, have just bought a bank-owned, four-bedroom, two-bath house in a nice Indianapolis neighborhood for $85,000, well below the city's median home price.

The couple, parents of a toddler, have rented for the past four years but watched as the price of this home was slashed repeatedly this past summer. After attending a seminar offered by the nonprofit Indianapolis Neighborhood Housing Partnership, Bennett improved his credit score, which helped the couple qualify for a 4.5% fixed-rate loan. Their monthly payments, including taxes and insurance, will run about $750, compared with the $900 they were paying in rent.

"We're buying low," he says. "It's a good investment."

Looking ahead, Humphries says that homeowners could be in for several years of below-average price increases — perhaps 1% to 2% annually — as markets recover from their hangover. Only after that might housing return to its historical trend lines, which would mean price appreciation of 2% to 4% a year at most, in the longer term. The notion of a home as a place to live, rather than as a source of cash, is coming back into vogue, says Chris Herbert, director of research at Harvard University's Joint Center for Housing Studies.

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"We're going back to normal," he says. "Which is, you put your money in, and you don't touch it."

Rey Weldert, a scientist who recently took his house in La Grande, Ore., off the market after watching it languish for two years. He has dropped the price by more than $100,000 to $279,000, which was about what he paid for it in 2006.

"We got caught in the bubble," he says.

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Tax factors
The tax deduction for home-mortgage interest could affect your calculations. Mainly, Herbert says, it subsidizes the cost of ownership for affluent families who itemize deductions on their tax returns. The federal standard deduction is now $11,400 for married, joint filers, while the first year's interest on a $160,000, 30-year loan at a fixed rate of 5% is about $8,000, according to Bankrate.com's mortgage calculator. A family would need more than $3,400 in additional deductions to benefit in that scenario.

People who are worried about their job security or who must relocate periodically must be more calculating now, too.

"It used to be, if you got transferred to Timbuktu for three years, you'd buy," says Mary Linge, director of homeownership and education at Hudson River Housing, an affordable-housing advocacy group in Poughkeepsie, N.Y. "Now, you have to ask: Will I be able to sell?"

For many people who have faced that question lately, the answer has been a life-changing "no." Take Tom Iverson, a fisheries biologist in Portland, Ore. He and his wife, Laurie, made the tough decision in 2010 to turn their house over to the bank after concluding it was worth $150,000 less than their outstanding mortgage amount.

When home prices soared, they'd refinanced with an adjustable-rate loan, taking out roughly $45,000 extra to pay off credit-card bills run up during Laurie Iverson's breast-cancer treatment. Eventually, the interest-rate reset and boosted their payments to an unsustainable 60% of Tom Iverson's income.

Portland, like other Northwest markets, entered the downturn later than other parts of the country, and home prices there are still falling; the couple reasoned that a near-term turnaround was unlikely. In January 2010, after trying and failing to negotiate a solution with their lender, they stopped making mortgage payments and moved with their children to a nearby rental.

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"I'd own a home again," Tom Iverson says. "But not one that is more than 35% of my income."

Meanwhile, the family's housing payments have dropped by half.

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