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Rent or Buy?

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A QUESTION A CALCULATOR CAN'T ANSWER
The Free Exchange blog picks apart David Leonardt's piece in the New York TImes about deciding whether to rent or buy a home. "Problem one is that said calculator asks you to fill in the about by which "you expect home prices to go up each year". The correct assumption should be zero. Strikingly, the calculator gives you the option to estimate annual appreciation as high as 30%. It doesn't let you enter an annual decline of value of greater than 10%, despite the fact that over the past year, several markets have seen price declines of at least that much. The latest Case-Shiller index has Las Vegas showing a 17.4% annual drop in value. Given how leveraged home purchases are (even the responsible ones that involve 10% to 20% down payments), the danger of declining home values should be given significant weight."
SOURCE:   The Economist

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