There are two reasons you’re looking at housing depreciation vs. rental income in equal terms. One of them is a mistake. The investment in your home wasn’t leveraged, but it also didn’t represent 100% of your housing costs. You still had some housing costs because of the money you were spending on taxes and insurance + maintenance costs, which at the $1,000,000 level you started from would still have been about $1,400/month or so. Your $2,700 rent includes all that, so really, that $2,700 only represents a net monthly loss of $1,300 to you, even on your 100% cash basis.
Had your equity been only 50% of the total value of the home and had you been spending $6,000/month on a mortgage payment (+ another $1,400+/month in taxes and insurance) you’d be looking at your $1,300/month additional housing expense as being a complete gift, even when considering the tax writeoff for the interest. And when you look at the combined costs of maintaining that mortgage + the continuing losses from price declines and then compare that total loss to your total losses as a renter pale in comparison to what you’d be looking at had you been a typical leveraged mortgagee. And this is were 95+% of all recent buyers are.
By the way, I really don’t understand how you’d feel less secure as a renter than as a property owner. You have more than enough cash to make the jump back into home ownership again and you’re obviously paying attention to the markets so you’ll recognize when that time will be right for you. As I see it, your situation couldn’t possibly be more secure so long as your cash isn’t parked in some high-risk investment. It seems to me that if you had been holding your property and watching your equity bleed out (at faster than $1,300/month) THAT would make you feel less secure.
Seeing as how you’re interested in downsizing to what is now a $1,000,000 price range, your other alternative is to do that now and only lose half as much of your investment dollars (+ property taxes). Even that would represent a lesser loss to you than you would have experienced holding the $2mil property. In your place I wouldn’t even consider this alternative, but then again, I wouldn’t be experiencing angst just because I was losing (much) less as a renter than I would be if I had a 50% mortgage.
