Where I think the difference in opinion lies, is that I don't think home prices are very depressed now vs what they would have been at a normal rate of growth. Depressed a little bit off of the massive growth that occured since 2000? Certainly...but still significantly overvalued from a long term growth perspective.
My main point is that most of this can be figured out as a relatively straightforward math problem. Making generalizations (as I've been doing as well) is only so helpful, and really shouldn't be the basis for him making a decision.
Find a house you like, and an apartment you like...calculate the fees associated with both, and do the calculation. The one point of contention here is the growth rate of the market...but that's a single variable. You can calculate the same formula, then assume multiple growth rate scenarios, and see what the outcome looks like for each. Attach a percentage of perceived likelihood to each scenario, and calculate your average return. Easy enough. Apply your risk preferences to see if the possibility of losing money is worth the possibility of making some...or if you'd rather know you're going to put a certain amount down on rent without risk due to market factors. Your leverage ratio is going to be massively reduced now, as well, since you're required to put down a lot more money than you were before...so it needs to be considered when looking at overall return.
Remember too that he said that he's looking at probably a MAX of 4 years...potentially quite a bit less. That just screams rent to me. If he was talking a minimum of 3-4, and potentially much more...it'd start to make a lot more sense.
As much as this discussion IS interesting, without specific scenarios to do a calculation, it's only so useful. If he finds a good deal, I could very well agree that it'd make sense to buy, even if only for a couple of years. If the rental market in Chicago is higher relative to home prices (as it is in some parts of the country...college towns, etc.) then buying would make more sense as well. But that'll take some research to figure out.
As for your final comment, rich, yes...the increase in demand, as well as the rising home prices should both affect rent prices...but, one of the main factors outside of pure demand that caused the housing bubble, was that with the lending market as it was, the housing market because much closer to an equity market than it was to the real estate market that we know. People were not paying the prices that they were for houses because they thought it was suddenly actually worth that much more to them to live in a house than it had 2 years before...but rather, they were sure, with the growth rates what they were, and with no equity required from them at all...that they could make a huge return on their investment. So, the housing market followed something closer to an equity boom/bust cycle than a standard real estate cycle...and since the rental market didn't offer that same choice to consumers, it didn't suffer the same effect. So, while the housing purchase market is forced back to its normal model, it will have to readjust to take that fact into account, much like a dot com stock would have back in the 90s...with the advantage that there is actually inherent value in the real estate. So, while the growth rate of the rental market has more accurately followed the consumer's propensity to consume housing (because it didn't have the ROI effect)...I feel it's more likely that the purchase market will close the gap towards the rental market, rather than the other way around. But that' s just my opinion.
So, in summary...depending on the market, and your preferences, either one has the potential to be the right option...but there is a lot more information necessary to find that out. I'd be happy to help you figure it out if you're interested in looking at it like that.
