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I'm unsure with how to calculate New Break Even Rent, can someone please help me? The question: Go to http://www.nytimes.com/interactive/2014/upshot/buy-rentcalculator.html?ref=economy&_r=0&abt=0002&abg=0 (In case this link does

I'm unsure with how to calculate "New Break Even Rent", can someone please help me?

The question:

Go to http://www.nytimes.com/interactive/2014/upshot/buy-rentcalculator.html?ref=economy&_r=0&abt=0002&abg=0

(In case this link does not work: go to www.nytimes.com and search for "Upshot Is It Better to Rent or Buy")

Keep all default assumptions and assume the home you want buy costs $1,250,000. The resulting "break-even rent" is then $4,032 (note: you can simply enter the home's price instead of adjust it on the graph). We are now interested in the effect of various variables on the "break-even rent."

Calculate the "break-even-rent-elasticities" of the

a) mortgage rate

b) down payment

c) home price growth rate

d) rent growth rate

e) investment return rate

f) inflation rate

g) property tax rate

h) marginal (income) tax rate

For each variable assume an increase by 10%. For variables that are measured in % use a percentage of the percentage. For instance, if inflation were 4% a 10% increase results in a 4.4% (and not a 14%) inflation rate. Also, for each variable hypothesize why the "break-even rent" will be increasing or decreasing (just one sentence). Then relate this to the resulting percentage change in the break-even rent. Note: Make sure you always go back to the default adjustments when you calculate the elasticity of a new variable.

image text in transcribed
Variable Variable * Break New Break | % change Elasticity 1.1 Even Rent Even Rent BreakEven R 0.0367 0.04037 4032 mortgage rate bi down 0.20 0.22 4032 payment c) home 0.03 0.033 4032 price growth rate dj rent 0.025 0.0275 4032 growth rate 0.04 0.044 4032 investment return rate f) inflation |0.02 0.022 4032 rate gj property 0.0135 0.01485 4032 tax rate hj marginal | 0.2 0.22 4032 (income) tax rate

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