Tuesday, April 08, 2008

Bob's Innumeracy watch

Apologies to Ms. Beard for posting the whole article, but hey, if your math wasn't deceptive I wouldn't be forced to do this.
clipped from www.azcentral.com

Betty Beard
The Arizona Republic
Apr. 6, 2008 09:05 PM

The recent rise in Phoenix's housing prices means that in some cases the cost of owning a house grew too high compared with the cost of renting one, says a new report from the Center for Economic and Policy Research, in Washington, D.C.

Based on 2006 housing costs, the cost of renting in the Phoenix area averages $862 while the average cost of owning can range from $1,343 to $1,804, depending on interest rates, the report said. That means that Phoenix rental costs can range from 47 to 64 percent of ownership costs.

The report says that when ownership costs exceed 50 percent, it indicates a bubble. Some "extraordinary" gaps include New York City, where it costs 109 percent more to own a home than to rent; San Diego, 133 percent; San Francisco, 161 percent; and Los Angeles, 168 percent.
 blog it

The percentages cited for other cities use a middle-cost scenario, while the Phoenix range of costs for owning is the low-cost and high-cost scenarios. So even if you knew better, you'd need to read the article to find the apples-to-apples comparison, which is this: the cost of ownership in Phoenix exceeds the cost of renting by 78%.

That's what those percentages mean, by the way: the article drops some critical words -- it should be "...when ownership costs exceed rental costs by 50 percent or more, it indicates a bubble."

Oh, and that "47 to 64 percent"? That's dividing the cost of renting by the (low and high scenario) cost of owning, which isn't directly comparable to any of the other results. Also, since that result isn't particularly meaningful, it's NOT in the original report, as opposed to all the other numbers in the article.

Click here to return to Gnomicon home page