Renting vs Buying : The Wall Street Journal

–Rent vs. Buy: Both Felix Salmon and e21 point to a paper by Eli Beracha and Ken H. Johnson on whether renting or buying is a better decision. “Home ownership is touted as the “American Dream”. It is credited with enhancing wealth, increasing civic pride, improving self-esteem, crime prevention, child development, and better educational outcomes, among other benefits. This paper does not dispute any of these claims. Instead, this study hypothesizes that crowding toward homeownership raises the price of homes above their fundamental value resulting in the purchase of a home becoming a contraindicative action. After setting the holding period to the average American’s tenure in a residence, renting (not buying) proves to be the superior investment strategy over most of the study period.” Separately, Daniel Aaronson and Jonathan Davis in a Chicago Fed letter find little evidence that a lack of mobility due to people unable to sell their houses has had a significant contribution to the unemployment rate.

–Debt Thresholds: Robert Shiller looks at how debt obligations are discussed. “Here in the U.S., it might seem like an image of our future, as public debt comes perilously close to 100% of annual GDP and continues to rise. But maybe this image is just a bit too vivid in our imaginations. Could it be that people think that a country becomes insolvent when its debt exceeds 100% of GDP? That would clearly be nonsense. After all, debt (which is measured in currency units) and GDP (which is measured in currency units per unit of time) yields a ratio in units of pure time. There is nothing special about using a year as that unit. A year is the time that it takes for the earth to orbit the sun, which, except for seasonal industries like agriculture, has no particular economic significance.”

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