(FORTUNE Magazine) – If you're ticked because home values have dropped in your area in recent years, lighten up. Unless you bought close to a market peak, you'll probably come out ahead. Because of leverage, it doesn't take much appreciation for housing to work as an investment. Consider a $300,000 property bought with the usual 20% down payment. A 2% rise in price represents a $6,000 gain on an investment of $60,000 -- a return of 10%. If the house is ever sold and capital gains taxes paid, $125,000 is excluded for people age 55 and over. Of course, this simple example ignores the cost of the mortgage and other homeownership costs. But even when those are taken into account, ownership still wins. For a more complete comparison, suppose that instead of buying a house, a family rents, and invests what would have been their down payment. Then every year they also invest the amount by which ownership costs (mortgage payments, property taxes, and maintenance costs) would have exceeded their rental outlays. If, over time, they accumulate wealth more quickly than they would by owning, then they made the right choice by renting. Such calculations are described below, using prices, property taxes, and rents on comparable houses supplied by PHH Homequity, a relocation-management firm based in Connecticut. The comparison assumes the owner is in the 30% tax bracket and that the renter earns 7% after tax on his money and pays annual rent equal to 8% of the home's value. The owner, on the other hand, pays property taxes of 1.3% and annual upkeep costs of 1%. Over a ten-year period, owning beats renting even if home values rise only 2% annually, half the average of the past ten years. Raise the renter's investment return from 7% to 10% -- an impressive 14% pretax -- and the owner still wins with just 3% appreciation. Later, when the mortgage is paid off, the owner's costs drop sharply while the rent keeps going up. That's encouraging, but purely theoretical. So what's been happening in the real world? People who bought an $80,000 property at the end of 1986 in Columbus, Ohio, a representative city, would by now have built up about $50,000 of net equity in the house, triple what they would have accumulated if they had rented and invested. The $50,000 is the sales price minus the remaining mortgage balance and a 6% sales commission. One reason the renters do poorly is that annual rent immediately exceeds owners' costs after tax deductions for interest payments and property tax are figured in. Owners are at more of a disadvantage in Los Angeles, where rents are low relative to home values. Still, despite the price implosion of recent years, people who bought as late as 1985 remain ahead. After that the positions quickly reverse. If your market timing was awful and you bought in the New York area in late 1987, shortly before home values peaked, you are well behind your renter alter ego. But don't sell just yet. If home prices appreciate just 1% a year from now on, you'll win the race handily by the year 2000. The clear message is to buy, but the footnote supplied by Los Angeles and New York is that you shouldn't strain to buy the most house possible. Hold some back for stocks and other investments, and use a little to celebrate your financial acuity.