Potato I have

I just read this NYT article from a few months ago; buyers in the bubble today are more than ever dependent on further appreciation:

For new home buyers, prices in New York would need to rise roughly another 13 percent over the next five years for the average buyer to do better than the average renter over that span. In Northern California, where the gap between house prices and rents is largest, home values would need to go up about 19 percent by 2010.

Over the next decade, the break-even increase is about 25 percent in New York and 40 percent in California.

From the article we see price/annual rent ratios of 33 in the bay area, and 25 in the next tier including NY, LA, Boston. And while the equation is different here in France (no mortgage writeoff, for example), our current apartment has a ratio of >30.

But to many people, the psychological benefits of buying are almost impossible to overcome. Owning makes them feel that they have achieved the American dream, or it gives them the secure sense that, if nothing else, they have a tangible asset where they can sleep at night.

Those are nice feelings, indeed. The question is how much they are worth to you.

Our case is a little different. While we hate missing the price runups (first in San Francisco, now in Paris), renting has been a conscious decision to keep life simpler and more flexible, and to live in buildings or locations where we wouldn’t or couldn’t purchase. It’s been the difference between doing and not doing a number of things that we’ve appreciated. And now, current housing purchase prices are helping to make this a logical decision as well.

(via Rebecca’s Pocket)

The EU has eased the debt rules. In theory, the short-term budget deficit limit is still 3% of GDP, but there is now a lot more wriggle room:

Under the accord, governments that run excessive deficits “temporarily” can escape sanctions, Mr. Juncker said, if they show the spending serves a worthwhile goal, like financing research and development, defense or economic and social restructuring.

I’m not sure how excited the 23 countries that are not France and Germany will feel about this.

Bob Herbert’s editorial today highlights the difference between the Bush administration’s monotone insistence that the economy is strong and getting stronger, with the fact that personal bankruptcies and debt burdens are at record highs. A quote (2003) from Elizabeth Warren, co-author of “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke,” makes bankruptcy more concrete by comparison:

This year, more people will end up bankrupt than will suffer a heart attack. More adults will file for bankruptcy than will be diagnosed with cancer. More people will file for bankruptcy than will graduate from college. And, in an era when traditionalists decry the demise of the institution of marriage, Americans will file more petitions for bankruptcy than for divorce.

Herbert remarks ‘last Friday’s Wall Street Journal featured a page-one article with the ominous headline: “New Group Swells Bankruptcy Court: The Middle-Aged.”‘

As we discuss purchasing a flat here in Paris, I’m struck by the difference in French and American lending terms for a home. I’m out of date, but I think a 30 year loan is still normal in the states, with 40 years not uncommon. Also, I think small down payments are not a real hindrance. Here, loans are usually 15 years, occasionally 20, and down payments are expected to be 20% or higher. Maybe this curbs the economy? It certainly curbs bankruptcies. And makes for a nice cash flow bump at an earlier age for those who don’t trade up or refinance.

This is a good reminder for us, as we consider Karen going back to work so that we can manage something in this neighborhood we like so much. But as Warren might say, that is a step that is difficult to back away from later. And we’re lucky to be here, making it on a single salary.