why buy when you can help pay someone else's mortgage!
seriously though, i didn't actually buy my place as an investment...it was just marginally less to rent than monthly payment on the target value of the home i bought. i bought the place to live in and had a nice surprise.
i think the rent vs. own argument is easy to make in a sound, rational environment/market, but its obvious that it isn't so in a market driven by irrational lending practices and foolish people that participate in them. and of course, there were those not-so-foolish that made a killing flipping houses and using ARMs to keep their options open. even with the downturn they would be losing only on a couple deals if they're paying attention. I wouldn't confuse "normal market conditions" with what has happened in the real estate market in the past 10 or so years.
truth is i'm pretty sure you would be even happier with yourself Jay if you HAD invested in the Seattle market and then rented and farmed out the management while you're on the east coast. a smart guy such as yourself could have found a gem in the market that would rent for your payment in 2002 (well, perhaps after 1 year or so), though perhaps not in that nieghborhood you are dreaming of (though we did look at a STEAL up on Phinney when we were looking, but it need to much work for a family with a new baby). perhaps your cash on hand situation didn't suit the timing, but that is another thing.
i'd be interested to hear your analysis of what happens to the rental market during a time such as this. it seems like there would be more people looking to rent and less rentals available. but then, with the end of the real estate market problems perhaps not in sight, is it really time to buy? so you pay more and more to rent? of course, i'm sure you found a grandma to rent you a house for $400.