Peter Principle

The New York Times has an article about the relative merits of renting vs buying a house, now the the housing bubble has deflated. They also have a nifty web-based calculator to compare the alternatives. They conclude that today, renting is usually the better choice.

It’s now clear that people who chose renting over buying in the last two years made the right move. In much of the country, including large parts of the Northeast, California, Florida and the Southwest, recent home buyers have faced higher monthly costs than renters and have lost money on their investment in the meantime. It’s almost as if they have thrown money away, an insult once reserved for renters.

Buyers in many places are basically betting that home prices will rise smartly in the near future.

Over the next five years, which is about the average amount of time recent buyers have remained in their homes, prices in the Los Angeles area would have to rise more than 5 percent a year for a typical buyer there to do better than a renter. The same is true in Phoenix, Las Vegas, the New York region, Northern California and South Florida. In the Boston and Washington areas, the break-even point is about 4 percent.

Keep in mind that the 2000-5 boom was even bigger than the ’80s boom and that house prices on the coasts, according to the official numbers at least, have fallen only slightly so far. So it is hard to imagine that prices will rise 5 percent a year, or another 28 percent in all, over the next five years.

Home Prices Drop After 11-Year Ascent

The median price of a previously owned home fell for the first time in 11 years last month, and inventories of unsold homes swelled to levels not seen in more than a decade.

The median price in August fell to $225,000, down 1.7 percent from August 2005. That was the first time since April 1995 that the national median price was lower than the same month a year before.

Many folks fail to keep funds for emergency

A poll done for Bankrate.com, an online financial information service based in North Palm Beach, Fla., found 39 percent of respondents have emergency funds, defined as checking or savings accounts with the equivalent of three months’ living expenses. Some 55 percent of respondents don’t have such accounts, and the rest did not answer the question.

The NYT reports on the national debt in Reasons to Worry.

Since becoming president, George Bush has presided over one of the steepest peacetime rises ever in the federal debt. The gross federal debt now exceeds $8.3 trillion. There are three reasons for the post-2000 increase: reduced revenue during the 2001 recession, generous tax cuts for higher income groups and increased expenditures not only on warfare abroad but also on welfare at home. And if projections from the Congressional Budget Office turn out to be correct, we are just a decade away from a $12.8 trillion debt — more than double what it was when Bush took office.

But perhaps a worse problem is the individual debt of American families.

Not only do Americans borrow as never before; they also save remarkably little. The impressive resilience of American consumer spending in the past 15 years has been based partly on a collapse in the personal savings rate from around 7.5 percent of income to below zero.

Big chunk of record tax receipts from insiders’ stock sales

California took in a record $11.3 billion in personal income tax receipts in April, $4.3 billion more than it collected last April. It’s almost certain that a significant chunk of April’s haul came from Google employees — perhaps one-eighth or more of the tax receipt gain.

Fourteen of Google’s top executives and directors sold $4.4 billion worth of stock last year.

Another likely source of April’s tax take, which could be less volatile than stock-based capital gains, is real estate.

According to watchdog group Public Citizen, an aggressive lobbying effort to repeal the estate tax has been largely funded and directed by 18 “super-wealthy” families. Those 18 families are worth a total of $185.5 billion.

That’s right. That’s an average of $10 billion per family.

That kind of money can buy a lot of votes in Washington. And it’s money well spent. According to the report, repealing the estate tax would save the families about $72 billion. And in the first decade, it would cost the U.S. treasury a trillion dollars.