Stuff Yaron Finds Interesting

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To rent or buy a house?

Should we rent or buy a house? A fairly quick and easy rule of thumb is (Price of a new home)/(monthly rent for equivalent home*12). As Dean Baker argues if the result is 15 or below then it makes financial sense to buy, otherwise renting is cheaper. For those who want more control over the calculations see the New York Time's rent vs buy calculator. My own settings for the calculator are give below.
Mortgage rate I go over to and look up rates in my area. It lets me set things like credit score. I usually look at 0 points down. There are times when using points makes sense but for a rough calculation I'm not going to worry about it.
Property tax rate For this I just go over to redfin and find a house for sale in the area I'm looking at. They list property tax data.
Annual home price change This value is in nominal (e.g. not adjusted for inflation) terms. Since home prices generally go up at the rate of inflation I set this value to whatever I set the inflation rate to under advanced settings.
Annual rent increase or decrease As this article quite reasonably argues rents usually go up roughly at the rate of household income. Yes, there are bumps in the road here and there but that is typically the over all rate. And household income usually goes up (at least in the last 30 years) at or below inflation. So again I'll set this value to the value I use for inflation.
For the next settings press the Advanced Settings button. I generally leave the values in the Buying and Renting section alone. It's the “Other” section that I adjust.
Rate of return on investments This again appears to be a nominal value so I use 4 plus the inflation rate (e.g. a 4% return above inflation) for no particularly good reason.
Marginal tax rate A quick search for “income tax rates” combined with the next year will usually turn up the right numbers.
Inflation rate I usually use 3%.

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