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I buy or rent?

The previous post intended to illustrate the mistake of comparing quota rent. But inevitably triggered the question of what is best for: rent or buy.


One of the reasons why it is difficult to answer this question is that it is poorly formulated. The other, related, is that the answer depends on who ask the question. Are a couple of simple examples.

Case I: Suppose that the question makes someone who already owns their home and have access to a mortgage loan. Following the example of the previous post, and abstracting the risk of property value (which may rise or fall in real terms), your choices are: (i) pay 10% real interest (the monthly fee) for 20 years and receive a perpetuity at 5.5% real (minus taxes and other costs) for rental housing, (ii) invest the monthly amount of the fee (an annuity for 20 years) in any alternative investment.

Case II: If the question makes an owner who also has money to buy another home in cash, now in (i) the buyer receives only the perpetuity (no financial cost), and (ii) the return of alternative investments is now applied to the entire value of the home and not just the value of the share (the annuity becomes an initial investment of all cash available).

Case III: Finally, if the question does someone who does not own, in (i) pay the fee for 20 years, and (ii) pay the rent forever (a perpetuity paying) and invest the difference between tuition and rent on an alternative investment.

As the rates of loans and available to prospective debtor EFFICIENCY different (and even these latter differ among potential borrowers), the result of these comparisons depends on who you ask the question. Vale

final clarification. While for simplicity we ignore variations in the real value of the property, in practice the real estate business depends heavily on the expectation of recovery and actual rates offered by alternative financial investments.

In Argentina, low rates (along with the concentration of agricultural income and some speculative capital flow) fed the real estate investment in self-funded products demanded by sector (case II), and expectations of future recovery, generating a cycle ("virtuous?) that has inflated the prices of these properties, shifting the spillover pricing.

more simple: the demand for high-priced areas has raised the prices of surrounding areas, making it more difficult access to cases I and III, in a sort of Dutch disease real estate, to which we return in a future post.

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Should I rent or Should I buy?

Following some light analysis on the match between rents and mortgages that lately have been suggesting that in relative terms is cheaper to rent ", I think it is worth making some comments (technical, tedious, accounting !) on the subject.


What better an example? Imagine a home of 275,000 pesos (rounded 60m2 to 1150 dollars per square meter to 4 pesos per dollar), an annual rent of 5.5% of property value (as I am informed, a reasonable approximation) and a mortgage to 20 years for the 100% of the value of the home, with a total financial cost of 25%, say, 15% expected inflation for the whole period plus a margin of 10% higher because of the inevitable uncertainty rating.

I anticipate some comments: (i) the bank typically finances 70% of the purchase, but still the opportunity cost of other 30% would become too cumbersome, and would peer markets essentially the same, (ii) expected inflation of 15? What is that? The bank would evaluate the practice of inflation for the next few years, and would adjust the loan rate from there. Again, do not hurt to take a couple inflation (alternatively, you can think of a 5-year contract).

So how are the numbers? According to the French system of fixed quotas, the annual fee of the mortgage is to be of 70000 pesos (5800 pesos per month), or 4 times the amount of rent. So far, the conventional argument: rent is cheap.

Is it cheaper? The above comparison is vitiated by so many errors that even worth mention. Best illustrated by the complete sample. Here goes:


gráfioo illustrates the essential point in answering the question in the title: the mortgage, even with an excessive margin of 10% for the bank, is a form of savings. This is precisely why pay more initially and less (and possibly zero) at the end. In exchange, lease, it is logical to assume will increase 15% per year as the value of the property (which, I assume, will increase with the price level, ignoring the possible real appreciation) will not stop grow. Thus, the debtor pays more because it becomes entitled to an income (the same income you will save when you pay off the loan).

The comparison is more obvious in real terms. After all, the debtor does not care how much weight it will pay but it represents in terms of their salary. Assuming that wages and rents rise pari passu with inflation of 15%, compración looks like this:


While flat fee drops by half in real terms liquefied by inflation, the rent remains contstante. The fee, which is 4 times the rent at the beginning, the rent falls below 10 years.

One way to summarize this is pointing to rent and fee are not comparable concepts: with a savings, the other not-and, as pointed , gives the impression that the recovery of income of the middle has led to a boom in consumption at the expense of savings.

That said, there are specific reasons that inhibit the family from Argentina to change LCD bricks. First, to access cash loans should provide 30% (80,000 dollars) at the time of purchase, and pay 4000 pesos per month (70% share estimated above).

why tuition is so expensive? In part by inflation, which I quickly liquefies remote payments, at the expense of increasing payments nearby. In financial jargon, I will shorten the life of the loan.

Leaving everything else constant (including bank margin should be cut as expected inflation), the monthly payment would fall by 37% if the expected inflation rate fell by 10%.


This is related to a feature of the French system that always caught my attention: the disproportionate burden (measured in real terms or, which is, in terms of salary) during the first years of the contract .

is true, as a distinguished colleague BEA, which the Americans tried to soften the negative slope of the second figure by increasing interest schemes (the infamous ARM) and fared well, but in our case inflation curve climbs dramatically. Just see how it changes the graph with expected inflation of 5% ...


... suggesting that it should be possible to soften financial engineering is pending and to open the door to housing to more people.

One last caveat: some of this applies to low-income sectors, who often have access to mortgage credit in any developing country (and to which access in the U.S. was one of the triggers of the financial crisis). These households' access to housing requires both supply-side policies (social housing) and demand (co-payments, guarantees, subsidized lines) that deserve a specific post (or several).

Visaya Song With Tagalog Translation

Rebecca Black, the worst singer Justin Bieber

Here is the proof that any may be famous, good or bad songs. This girl has exceeded visits to a pretty song ... horible and repetitive call Friday (os says a person who goes three times a week at the Conservatory and has been studying music for about 5 years) to Justin Bieber on Youtube. I personally Justin Bieber is not someone I like a lot but now I support him. Reasons? Rebecca Black has been to criticize. And I say, have you heard and seen the video of his song? I think not ...

takes more than 33 million views on Youtube in a week. He has received many insults and criticisms of others. Insults from fans of Justin and criticism prestigious media. Rolling Stone has said the song is "extraordinarily stupid." For their part, several famous music critics have declared it as the "worst song in the history of pop music."

I put here the video of the song.

Have you noticed that at the beginning of the song when they leave the days of the week absence on Saturday? Do not put it. Start with Sunday and ends on Friday. Other than that the beginning of the song is a copy of Baby. It is the "baby baby" but with "friday friday." And tell me.

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The price of vegetables

At the request of a pair of distinguished colleagues and photographers CIPPEC I provided the photo, in order to avoid possible sanctions, the source revealed here ELY Index of food prices:

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Basile theory of industrial policy

In a famous speech in honor of Alan Greenspan as a result of his departure as Federal Reserve Chairman U.S., Mervyn King developed what he called the Maradona theory of interest rates.


Mal translating and summarizing the words of King, in the classic second goal against the British in 86, Maradona left behind five straight running defenders from midfield because the defenders were running waiting for Diego dribble. According to him (King, not Maradona), monetary policy under Greenspan operated the same way: the markets reacted in anticipation of the central bank's response, eliminating the need for a sharp rise in interest rates. In the words of King: "the market WAS doing the work for us." (We now know that Greenspan was far from being Maradona, and an abandonment attitude in this and other areas of their business, helped to generate the greatest global financial crisis in 50 years.)

paraphrase Mervyn King, high dollar could refer to as the "theory of industrial policy Basile." If it is incorrect to assume that the high dollar was a policy from the beginning (in fact, was the result of the run of 2002), from 2003, at least in words, the high dollar was blessed as a tool for development of sectors industry less competitive, often referring to the Asian export model. However, as noted in the previous post, except few cases, the industry does not seem to have progressed on this front, growing its external deficit (and dropping their expopartaciones gross) pari passu to the appreciation of the peso as if ten years of exchange rate "competitive" would not have had the greatest impact. (In the chart, "other goods" denotes manufactured goods, including primary source.)


This unease about the growing export primarization (which exceeds the Argentine neighborhood debate) seems to be due to a truncated, Macroeconomic somewhat of industrial policy in an export model. All the high dollar bet is como pensar que con tener los mejores jugadores del mundo basta, que es suficiente sacarlos a la cancha y pedirles que pongan huevos. Así como el puro talento no es sustituto del plan de juego, el dólar alto no es sustituto de la política industrial.

Lo curioso es que, tras la crisis, el gobierno insinuó algunos de los elementos propios de una política industrial activa (reforzando la secretaría PyME, fondeando la investigación básica, explorando la formación de clusters productivos o el lanzanmiento de un banco de desarrollo) pero con el tiempo (difícil pensar en una fecha cierta) se fueron conformando con una suerte de piloto automático, como sedado por el éter de los dólares sojeros and give me two inflationary euphoria. So much so that in a radicalization of the theory Basile, the current Secretary of Economic Policy tuiterizó recently that "Argentina is competitive without relying on appreciation or depreciation."

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"Dutch Disease or industrial policy? (From the primarization of our exports ...)

Following the modest exploration of industrial identikit argentiono started here and here, is this brief illustration of what could be interpreted either as evidence of the failure of the substitution model, or as a successful model agricultural exports, depending on the vocation Industrialist of the reader.


As shown, a decade of hedging and transfer to less competitive industries by encouraging domestic consumption has generated external balances industries increasingly negative (in the graph, NX are net exports: exports minus sector imports, "primary" refers to the primary sector, and "other" are other assets).



A pattern not unlike (but faster) that features our Big Brother (Brazil), who opted to keep inflation in check even at the expense of faster appreciation:


In principle, one could say that this result is not surprising: the impact of real appreciation on the competitiveness of the disadvantaged is one of the classical results of what is generally called Dutch disease, although this would to look more closely at the global production of these sectors.

But in the case of Argentina drew attention to the fact that the deterioration of external balance industrial precedes by several years the real appreciation, which would suggest it's more the effect of the failure (or, strictly speaking, the absence) of policies industrial, before the recent acceleration of the appreciation exchange. Or, coining expressions made light, to what might be called, paraphrasing Mervyn King, the theory Basile industrial policy (on which we will return in a future issue ...)

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What can you do with inflation?

Following a series intended to map the media response of the candidates (which will leave the microphone, do not they write their painstaking write), it is the turn the damn inflation. (It is not my intention to mix my humble opinion this policy among people certifying weight. But to avoid, just the mere journalistic report, refer to their stakeholders an old post namesake. Unfortunately, very little has changed in the 10 months since I wrote it.)