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The Friday Podcast: Finally, An Apology

Housing

The Friday Podcast: Finally, An Apology

For two years, we've waited for someone from the financial world to apologize for their role the financial crisis.

On today's Planet Money, Jacob Kosoff steps up.

The Friday Podcast: Finally, An Apology

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A former Freddie Mac economist.
Jacob Kosoff

Kosoff used to work as an economist for Freddie Mac's "Mission Department." His job was to promote homeownership, and he was really good at it.

He managed an online calculator designed to help people determine whether to rent or buy a house. Kosoff says there's a big problem with that calculator (which is still online), and he's sorry he didn't work harder to fix it.

It doesn't allow for the possibility that the value of a house might fall over time.

Rent v. Buy
Freddie Mac

That got us wondering: What would a proper calculator to help people decide whether they should buy or rent look like?

So we called up Christopher Mayer, a professor of real-estate finance, thinking he would have the spreadsheets and formulas we were looking for.

He didn't. Mayer says answering this question is only partly about math. A lot of it is psychological.

The value of a home is the the value you get from living in it and two different people are going to get two different values from the same home. It's a very individual decision.

That said, Mayer still agreed to help tackle this question with a couple of our listeners. Here are some highlights from those conversations:

Richard H.

I live in Pittsburgh, PA, and I currently rent.  I can definitely get more "house for my money" if I buy.  Pittsburgh is full of great houses.  In fact, I think Pittsburgh was recently ranked as one of the best places to make that switch, as well as being a great place to relocate to.  But, I've never owned before.  I'm also trying to figure out if it makes sense from a tax perspective.  Anyway, Pittsburgh has not been as hit by the bursting of the bubble as a lot of other places (largely because it was not as impacted by the bubble - although I believe it has one of the highest rates of prosecutions for mortgage fraud recently - go figure).  But, home prices have gone down and I'm thinking that the metaphorical iron might be hot right about now.

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Brian B.

I've always enjoyed the flexibility of renting for the last 10 years in DC; however, I just got married 4 months ago. My wife, who turned me on to Planet Money, tells me a month ago she would like to own a place (paint walls, etc) when our lease ends in May. We are now doing the math, and I'm open for anything. I'm still leaning towards renting while she's going to open houses. We have enough for decent down payment, and she's got near perfect credit.

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Mark B.

We own our home and hope to retire soon. When we do we intend to move to Colorado and are seriously considering renting at that time. I certainly wouldn't sign any loan papers without an independent legal review. My calculations show that deferring the cost of purchasing a home outright (paying cash) and instead placing the money in a conservative investment would improve our net worth over time. I still need to evaluate the tax implications.

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