The effects of unemployment benefit duration

What happened to the US labor market after the Emergency Unemployment Compensation Act expired after the Great Recession?

By Tyler Smith of The AEA. 

"In December 2013, when Congress failed to reauthorize the Emergency Unemployment Compensation Act, many prominent economists predicted a substantial decline in employment and labor force participation.  

In a paper in the American Economic Journal: Macroeconomics, authors Marcus Hagedorn, Iourii Manovskii, and Kurt Mitman show, to the contrary, that this abrupt end to unemployment benefits actually led to a surge in employment and labor force growth, especially in states with larger cuts in benefit duration.

The sudden termination of federal support for unemployment benefits and its variation across states provided an ideal natural experiment for understanding the relationship between these benefits and the labor market.

Figure 1 from the authors’ paper shows the reform's impact through two panels tracking employment-to-population ratios and labor force participation rates. The dashed vertical line indicates the expiration of the Emergency Unemployment Compensation Act.

 

The chart displays the difference between states that had high benefits and low benefits before the reform, normalized to zero in the fourth quarter of 2013. Prior to the reform, both panels show a steady downward trend, indicating that high-benefit states experienced persistently deteriorating labor markets relative to low-benefit states.

In 2014, the downward trend abruptly changed direction. Employment in previously high-benefit states surged by 0.008 points relative to low-benefit states within a year, completely reversing the multi-year decline. Labor force participation in generous states also recovered, rising by nearly 0.005 points relative to less generous states. This sharp discontinuity at precisely the moment of the policy change, along with the absence of other major changes in the policy environment, provides strong evidence that the benefit cut drove the employment recovery.

The researchers estimate that a 1 percent reduction in benefit duration increased employment by 0.02 log points after four quarters. Nationally, this translated to 2.5 million additional employed Americans by late 2014, accounting for 75 percent of that year's employment growth.

The findings suggest that while unemployment insurance provides crucial support during economic downturns, extended benefits may delay full recoveries.

♦

“The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle?” appears in the October 2025 issue of the American Economic Journal: Macroeconomics."

Were The Pilgrims Capitalists Or Socialists?

See The Pilgrims Were ... Socialists? from The New York Times. There seems to be some controversy. One story has them owning property in common and not doing well until they went with private property. Not everyone agrees with that version of history. Here is what seems to be the most interesting thing from the report:

"Historians say that the settlers in Plymouth, and their supporters in England, did indeed agree to hold their property in common — William Bradford, the governor, referred to it in his writings as the “common course.” But the plan was in the interest of realizing a profit sooner, and was only intended for the short term; historians say the Pilgrims were more like shareholders in an early corporation than subjects of socialism.

“It was directed ultimately to private profit,” said Richard Pickering, a historian of early America and the deputy director of Plimoth Plantation, a museum devoted to keeping the Pilgrims’ story alive."

So when you eat turkey tomorrow, you might really be celebrating that great American institution...the corporation. Makes me feel real patriotic.

This part was interesting too.

"The competing versions of the story note Bradford’s writings about “confusion and discontent” and accusations of “laziness” among the colonists. But Mr. Pickering said this grumbling had more to do with the fact that the Plymouth colony was bringing together settlers from all over England, at a time when most people never moved more than 10 miles from home. They spoke different dialects and had different methods of farming, and looked upon each other with great wariness."

"“One man’s laziness is another man’s industry, based on the agricultural methods they’ve learned as young people,” he said." 

"Bradford did get rid of the common course — but it was in 1623, after the first Thanksgiving, and not because the system wasn’t working. The Pilgrims just didn’t like it. In the accounts of colonists, Mr. Pickering said, “there was griping and groaning.”"

"“Bachelors didn’t want to feed the wives of married men, and women don’t want to do the laundry of the bachelors,” he said.

The real reason agriculture became more profitable over the years, Mr. Pickering said, is that the Pilgrims were getting better at farming crops like corn that had been unknown to them in England."

This Year’s Thanksgiving Feast Could Actually Be Cheaper

Turkey, stuffing and cranberry prices are all lower, but skip the yams

By Kirk Maltais and Christopher Kuo of The WSJ. Excerpts:

"The American Farm Bureau Federation estimates that Thanksgiving dinner will cost an average of $55.18 for a group of 10, down 5% from last year. 

Holiday staples such as turkey, stuffing and cranberries cost less than in 2024, partly because of widespread discounting but also because overall demand for turkey and wheat—which is used to make stuffing—has been down. Other staples, including sweet potatoes and fresh fruit, cost more as the agriculture sector contends with tariffs and high costs."

Click here to read the press release from the Farm Bureau. 

Individual Prices

• 16-pound turkey: $21.50 or $1.34 per pound (down 16.3%)
• 14-ounces of cubed stuffing mix: $3.71 (down 9%)
• 2 frozen pie crusts: $3.37 (down .8%)
• Half pint of whipping cream: $1.87 (up 3.2%)
• 1 pound of frozen peas: $2.03 (up 17.2%)
• 1 dozen dinner rolls: $3.56 (down 14.6%)
• Misc. ingredients to prepare the meal: $3.61 (down 4.7%)
• 30-ounce can of pumpkin pie mix: $4.16 (up .1%)
• 1 gallon of whole milk: $3.73 (up 16.3%)
• 3 pounds of sweet potatoes: $4.00 (up 37%)
• 1-pound veggie tray (carrots & celery): $1.36 (up 61.3%)
• 12-ounce bag of fresh cranberries: $2.28 (down 2.8%)

Here are the prices for each of the last four years

 

2022) $64.05 (from last year's report)

2023) $61.17

2024) $58.08

2025) $55.18

 

Those four figures don't appear to be adjusted for inflation. 

 

I don't see a timeline chart of the cost so I will repost something from last year:

Here is a graph of the change in cost over time from economists Samantha Ayoub, Bernt Nelson & Betty Resnick of The American Farm Bureau Federation.

It looks like the cost has not changed that much adjusted for inflation over the last 20 years.

 

Here is one that goes from 1986-2019. It looks like the price fell from about $25 in 1986 to about $20 in 2019 (in 2019 $s). 

 

 

Is there InConspicuous Consumption? (Part 2)

This is a follow up on yesterday's post. Here are links to some research on this concept:

The Rise of Inconspicuous Consumption by Giana Eckhardt, Jonathan AJ Wilson & Russell Belk. 

"Abstract 

Inconspicuous consumption – where brand signals are not readily apparent, available or visible to most consumers – is on the rise, even in Asia, which has typically favored conspicuous brands. This appears to be an oxymoron which challenges conventional branding theory; we argue it is redefining constructs such as luxury and class."

Inconspicuous Consumption and the Rise of the Aspirational Class. By Elizabeth Currid-Halkett. Excerpt:

"This new elite cements its status through prizing knowledge and building cultural capital, not to mention the spending habits that go with it — preferring to spend on services, education, and human-capital investments over purely material goods. These new status behaviors are what I call “inconspicuous consumption.” None of the consumer choices that the term covers are inherently obvious or ostensibly material but they are, without question, exclusionary." 

Inconspicuous Consumption: A new theory of the leisure class by Virginia Postrel. 

Subtle signals of inconspicuous consumption by Berger, J., & Ward, M.

"Abstract

While theories of signaling and conspicuous consumption suggest that more explicit markers facilitate communication, this article examines the utility of subtle signals. Four studies demonstrate that while less explicit branding increases the likelihood of misidentification (e.g., observers confusing a high-end purchase for a cheaper alternative), people with more cultural capital in a particular domain prefer subtle signals because they provide differentiation from the mainstream. Such insiders have the necessary connoisseurship to decode the meaning of subtle signals that facilitate communication with others “in the know.” Consistent with the notion that these effects are driven by outward communication, they are stronger in identity-relevant product domains and situations where consumption is more public. This work highlights the communication value of less explicit signals and discusses the implications for branding, signal persistence, and the communication of identity." 

Inconspicuous Consumption: Work-Rich, Time-Poor in the Liberal Market Economy by Oriel Sullivan and Jonathan Gershuny. 

"Abstract

Addressing the relationship between consumption behaviour, leisure time and the market, we seek a solution to the problem of the maintenance of consumption expenditure in economies where leisure time is shortest for those who have the most to spend, a contradiction particularly characteristic of societies belonging to the politico-economic regime type identified as ‘liberal market’. In contrast to ideas of conspicuous consumption based on display, we present a concept of ‘inconspicuous consumption’ relating to an imagined future use of purchases already made. Expensive leisure goods that symbolize a wished-for self-identity or lifestyle are purchased by high-income earners with little leisure time. From the point of view of the production sector, the purpose is achieved and a sale is made. However, the purchased goods remain ‘in storage’at home as symbols of a potential but unrealized and, in the meantime, unrealizable future. We illustrate different modalities of the practices of inconspicuous consumption and distinguish it from other consumption practices."

The Shift from Conspicuous to Inconspicuous Consumption and the Messages Hidden in Plain Sight by Jaclyn L Tanenbaum.

"Abstract

With the growing fragmentation of the luxury consumer market, the increasing mix of conspicuous and inconspicuous products offered by luxury brands, and the overlapping motivations for (in)conspicuous consumption behavior in the marketing literature, this research investigates under which circumstances a luxury consumer will choose to engage in either conspicuous or inconspicuous consumption. Three cross-sectional studies with experimental designs are conducted to test the proposed Triple C Model of (In)Conspicuous Consumption and determine if the proposed model can be used to predict, and ultimately change, consumption behavior among certain luxury consumers. The proposed model purports that construal level, sender cultural capital (e.g., the knowledge to know the difference between seemingly plain and inconspicuously branded luxury products), and the sender’s perception of their audience’s cultural capital are the underlying mechanisms that influence the choice to engage in either conspicuous or inconspicuous consumption. Results reveal that the level in which luxury consumers construe luxury products was inversely related to the amount of cultural capital they maintain for luxury products. Lower (more concrete) construal level luxury consumers had more cultural capital than higher (more abstract) luxury consumers. Results also revealed the effect of cultural capital on whether to engage in either conspicuous or inconspicuous consumption was moderated by the sender’s perception of their audience’s cultural capital. Higher cultural capital luxury consumers were more likely to engage in inconspicuous consumption when they perceived their audience also to have a higher amount of cultural capital, but were more likely to engage in conspicuous consumption when they perceived their audience to have a lower amount of cultural capital. This effect was attenuated among lower cultural capital luxury consumers, as they were more likely to engage in conspicuous consumption regardless of their perceptions of their audience. Finally, this research used the Triple C Model of (In)Conspicuous Consumption to target initially higher (more abstract) construal level luxury consumers who had lower cultural capital to change their consumption behavior to engage in inconspicuous consumption over conspicuous consumption under certain circumstances."

Is there InConspicuous Consumption?

I have alot below on Conspicuous Consumption. But what if rich people spend their money and they don't want to be seen doing it? I also wonder what share of spending by the rich is on Conspicuous Consumption and what share is on  InConspicuous Consumption. A google search shows that there is research on InConspicuous Consumption. Maybe I will post some of those links tomorrow.

See The Ultrarich Are Spending a Fortune to Live in Extreme Privacy: In Miami and elsewhere, the wealthy are moving in increasingly private spheres, shelling out big money to bypass the indignities of public life by Arian Campo-Flores of The WSJ. Excerpts:

"The ultrawealthy are wielding their growing fortunes to glide through a rarefied realm unencumbered by the inconveniences of ordinary life. They don’t wait in lines. They don’t jostle with airport crowds or idle unnecessarily in traffic."

"A new service economy enables them to avoid everybody else if they want to. In the Bentley Residences condo tower under construction in Sunny Isles Beach, north of Miami, car elevators will deliver residents straight up to their homes and deposit vehicles in adjoining “sky garages,” avoiding the need to deal with parking valets and reception areas."

"Those who can afford it sometimes rent an entire facility to have exclusive use of it. At Centner Wellness, a high-end holistic healing center in Miami that offers a host of treatments employing the latest technology, rich clients occasionally book the whole place for several days, said founder Leila Centner.

One family of about 10 people did that a few months ago, she said, turning the 15,000-square-foot center into their own wellness playground, at a cost of $150,000."

"When the ultrawealthy choose to socialize, they often seek circles that are meticulously selected, said Gregory Pool, a managing director with NewEdge Wealth in Miami.

Faena Rose is a private social club in Miami Beach focused on art and culture, whose members are vetted by a committee and pay $15,000 initially and another $15,000 annually. They get VIP access to the beach club, spa and other amenities at the Faena Miami Beach hotel, and admission to roughly 80 cultural events a year, held in intimate settings for members only."

"A newer variant: private dinner clubs, where members get haute cuisine, personalized service and the ability to secure a table whenever they want."

"Lauren Beall, owner of Travel Couture in Miami Beach, specializes in arranging custom travel experiences for the ultrawealthy. She has booked private islands for clients and flown in Michelin-starred chefs, yoga instructors and performers."

Also see Veblen Goods by Andrew Loo of CFI (Corporate Finance Institute) . Excerpts:

"Veblen good is a type of luxury good named after American economist Thorstein Veblen. It shows a positive relationship between price and demand [it should say quantity demanded-CM], and thus an upward-sloping demand curve.

The demand [it should say quantity demanded-CM] for a Veblen good rises (drops) when its price increases (decreases). A Veblen good generally is considered a high-quality exclusive product and a status symbol. When the price goes higher, its status symbol makes the Veblen good more desirable to consumers with high social and economic standing. Some common examples of Veblen goods include luxury cars, wines, handbags, fine jewelry and watches and even sneakers."

"Conspicuous consumption is another relevant concept of Veblen goods. It represents the purchase of goods and services to display one’s economic power and social status, motivated by the desire for prestige.

The concept of conspicuous consumption was also identified by Thorstein Veblen in his book The Theory of the Leisure Class (1899). In the practices of conspicuous consumption, a higher price makes a product more desirable for its status symbol, which explains the features of Veblen goods from a sociological perspective."

Adam Smith may have beaten Veblen to the punch. In The Wealth of Nations, he wrote:

"With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eyes is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves. In their eyes the merit of an object which is in any degree either useful or beautiful, is greatly enhanced by its scarcity, or by the great labour which it requires to collect any considerable quantity of it, a labour which nobody can afford to pay but themselves. Such objects they are willing to purchase at a higher price than things much more beautiful and useful, but more common." (the entire book is online)

In Veblen's chapter on "Conspicuous Consumption," there is no mention of Adam Smith. 

There is statistical or empircal evidence that supports Veblen's theory. A Ph. D. student found that rich families do spend more on "Conspicuous Consumption." 

See also Doctoral Thesis Says Rich People Spend More on Conspicuous Things. Excerpts:

"Ori Heffetz, a doctoral student in economics at Princeton University (back in 2005-now he is a professor at Cornell University), has developed the first broad-gauged index of product visibility. Sure enough, he finds in his thesis that conspicuous items make up a greater share of the consumption budget in wealthier families."

"Mr. Heffetz estimated the relationship between the amount spent on each of 29 products and a household's income, using data on 3,924 households from the 1997 Consumer Expenditure Survey, conducted by the Bureau of Labor Statistics. The "income elasticity of demand," defined as the percentage change in consumption for a 1 percent increase in income, summarizes the degree to which a good is a luxury or a necessity. A good is a luxury if a 1 percent increase in income is associated with more than a 1 percent increase in consumption of that good.

Mr. Heffetz's analysis indicates that the higher the visibility of a good, the more likely it is to be a luxury item. For example, spending on cars and jewelry, two highly visible items, rises as a share of a household's budget as its income rises, while spending on home utilities, an inconspicuous category, falls as a share of the budget as income rises."

Related posts:

What if you had to spend alot of money just to be offered the chance buy a luxury item? (2025) 

Has Luxury Lost Its Shine? Customers are complaining that they are getting less bang for their buck at the luxury store (a case of Veblen goods) (2024)  

Is Starbucks coffee no longer a Veblen good? (2024)

China's Government Cracks Down On Displays Of Wealth On Social Media (2022)  

(See In China, Bragging About Your Wealth Can Get You Censored: Online posts by users showing off their receipts, over-ordering food or scattering money have been deemed vulgar. Regulators say such content leads young people astray by Vivian Wang and Joy Dong of The New York Times.)

Payless sold its discount shoes for $600 a pair at mock luxury influencer event (2018)

Federal Reserve Economists May Have Discovered Another Cause Of Bankruptcy (if a neighbor wins the lottery people start spending more on consumption to keep up) (2016)

Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!) (2007)

Can you hire your own judge?

See Inside the Little-Known World of Private Judges for Hire: Litigants looking for speed and expertise are paying for judges who bring it by Corinne Ramey of The WSJ.

I used the book The Economics of Macro Issues by Roger Miller & Daniel Benjamin as a supplemental textbook. Chapter 1 is title "Rich Nation, Poor Nation." It mentions that political stability, secure private property rights and legal systems based on the rule of law were important for economic growth.

We usually think of the legal system has something that has to be provided by government. But maybe not always as this article shows. Excerpts:

"Private judging is on the books in about 30 states, according to a Florida task force that has studied the practice. Some require anyone hired as a judge to have served in the public court system. Others require only experience as a lawyer.

In New York, an amendment to court rules last year encouraged the use of private judges in complicated commercial disputes. In Florida, a revised private-judging statute which clarifies that a private judge may oversee a jury trial, could go before lawmakers early next year. And in California and Colorado, private judges are increasingly overseeing family-law matters—and not just for high-net-worth celebrities such as Arnold Schwarzenegger and Elon Musk, who opted to use the process for their divorce proceedings."

"Freed from ties to an actual courthouse, private judges have presided over cases at all hours—and locations."

One judge was getting paid "nearly $1,000 an hour over the course of more than 100 court dates" 

 

The % of 25-54 year olds employed in Sept. was 80.7%, unchanged from Aug.; Average hours worked was unchanged

One weakness of the unemployment rate is that if people drop out of the labor force they cannot be counted as an unemployed person and the unemployment rate goes down. They are no longer actively seeking work and it might be because they are discouraged workers. The lower unemployment rate can be misleading in this case. People dropping out of the labor force might indicate a weak labor market.

We could look at the employment to population ratio instead, since that includes those not in the labor force. But that includes everyone over 16 and that means that senior citizens are in the group but many of them have retired. The more that retire, the lower this ratio would be and that might be misleading. It would not necessarily mean the labor market is weak.

But we have this ratio for people age 25-54 (which also eliminates many college age people who might not be looking for work).

It was 80.6% in Jan. 2020 just before Covid. The 80.9% in June & July 2023 was the highest since the 80.9% in April, 2001. We also reached 80.9% in July, August and September of 2024. 

It was 80.6% in Jan. 2020 and 69.6% in April 2020.  Click here to see the BLS data. Here is what it was for each of the last 3 years

2022) 79.875% 

2023) 80.667%

2024) 80.717%

 

The average for the first 9 months of 2025 is 80.589%.

 

The unemployment rate was 4.4% in September and it was 4.3% in August. Click here to go to that data. Here is what it was for each of the last 3 years

 

2022) 3.6%

2023) 3.6%

2024) 4.0%

 

Labor Force participation rose from 62.3275% to 62.4478%. Here is what it was for each of the last 3 years 

 

2022) 62.2%

2023) 62.6%

2024) 62.6%

 

The % of the adult population employed rose from 59.63% to 59.68% (that is people 16 years old and older).  Here is what it was for each of the last 3 years 

 

2022) 60.0%

2023) 60.3%

2024) 60.1%

 

Here is the timeline graph of the percentage of 25-54 year olds employed since 2015.

 

 

Now since 1948. 

 

 

Now hours worked. This comes from the St. Louis FED. See Average Weekly Hours of All Employees, Total Private. It was 34.2 in both September and August. Shaded areas indicate U.S. recessions. 

 

 

Related posts:

This one has to do with the difference between two employment surveys. See The economy added 339,000 jobs in May according to the establishment survey but the household survey showed a loss of 310,000 and a rise in the unemployment rate from 2023. 

"The reason for the discrepancy is that there are two surveys. The establishment survey is used for the Labor Department's monthly jobs report. They contact businesses for this survey. The household survey is used to put together the unemployment rate. The Bureau of Labor Statistics contacts households for this one."

See also Comparing employment from the BLS household and payroll surveys from the BLS.

Click here to see a good Twitter thread on the jobs report (including wages) from Harvard economist Jason Furman.

See also Delayed September report shows U.S. added 119,000 jobs, more than expected; unemployment rate at 4.4% by Jeff Cox of CNBC.

Both numeracy and literacy were invented in the service of finance and commerce

That comes from a book review in the NY Times. See Finance Is the Master Technology — and It’s Funded the World by Felix Martin.

The book reviewed is Money Changes Everything: How Finance Made Civilization Possible by William N. Goetzmann. He is a Professor of Finance and Management Studies at Yale University. Excerpts:

"finance is a “technology of civilization” — a way of thinking about and doing things that has been the central facilitator of the material, artistic and cultural accomplishments that we call civilized life. Indeed finance, Goetzmann argues, is a sort of master technology, from which an astonishing range of our most basic habits of mind derives."

"Autarkic subsistence farming had to be replaced by specialization, the division of labor and coordination on a massive scale. The innovation developed by the clerical bureaucracies to enable this transition was the invention of financial accounting. And it was only as part of this new financial system that writing and abstract numbers — those epochal inventions that so clearly transformed the subsequent history of humanity in so many other fields — were invented."

"finance is responsible for our modern conception of time. Pre-monetary society operated on sacred time, with the day divided up by ecclesiastical offices or prayer times, and the year into high days and holy days that reflected the cycle of the seasons or the phases of the moon. Financial reasoning and, in particular, the calculation of compound interest demanded a more regimented scheme arbitrated by objective mathematical rules rather than clerical authority."

"“financial technology is a time machine” — a set of ideas and practices that enable us to shift economic value backward and forward through time."

"the ancient Sumerians introduced a 360-day year in order to make calculating interest easier.'

"Modern ideas of probability and risk, of ethics and morality, and of appropriate models of commercial and even political organization — all were forged in the furnaces of finance,"

"“Like other technologies,” he writes, finance “developed through innovations that improved efficiency. It is not intrinsically good or bad.”"

"One does not have to be a hard-core Marxist to entertain the idea that finance is not, and did not evolve as, a neutral tool to improve the operation of the free market — itself an ethically colorless state of nature in human relations. This alternative view is in perfect agreement that finance is indeed one of the most powerful tools for the organization of human activity ever invented. But it holds that it arose historically, and continues to be used today, to codify and enforce relationships built on power and luck as much as to facilitate voluntary and rational decision-making."

Related post:

World's oldest writing not poetry but a shopping receipt

Other history related posts:

The surprising link between science fiction and economic history 

MONKS, GENTS AND INDUSTRIALISTS: THE LONG-RUN IMPACT OF THE DISSOLUTION OF THE ENGLISH MONASTERIES 

Did Tea Drinking Cut Mortality Rates in England?

Both numeracy and literacy were invented in the service of finance and commerce

Pre-market societies could sometimes have alot of violence

Was 1800 (approximately) A Pivotal Year In Human History? Robert Fogel, Francis Fukuyama, And Deirdre McCloskey All Seem To Think So

Some History of Insurance

The surprising link between science fiction and economic history

What happened in some earlier U.S. trade Wars?  

Did the industrial revolution cause children to take on adult roles later and later? 

Were The Pilgrims Capitalists Or Socialists? 

Primitive communism: Marx’s idea that societies were naturally egalitarian and communal before farming is widely influential and quite wrong (plus Ruth Benedict on property rights)  

When workers were paid twice a day and given half-hour shopping breaks (Germany, 1923) 

In 1923, Germany printed money to pay workers who were told to stay at home 

The short history of global living conditions and why it matters that we know it

The long-term, wealth-building effect of homeownership is often less than that of renting and investing in the diversified market

See Homeownership and Wealth: Why Policymakers Should Stop Subsidizing Risk by Norbert Michel and Jerome Famularo of The Cato Institute. Excerpts:

"Whether buying or renting and investing is a better strategy for long-term net worth is dependent on many factors. In particular, it depends on the price-to-rent ratio (the ratio of a home’s selling price to its renting price), future house price appreciation, future rent inflation, future market returns, and mortgage rates.

In general, renting is almost always a better decision for short-term residency (under 10 years) due to the lack of closing costs or high-interest payments that are only associated with buying. Still, a longtime homeowner may enjoy higher net worth relative to renting and investing, especially if house price appreciation and rental inflation are both high relative to market returns. If, however, market returns are high and house price appreciation and rental inflation are low, renting and investing would likely lead to higher net worth even for longer-term residencies.

The New York Times has built a great tool for estimating whether buying or renting is a better deal, depending on various adjustable parameters. Table 1 uses the latest data from Zillow to show the amount of time it would take for buying to pay off versus renting across several market scenarios, using median home price and rent for the US average, San Jose, and New Orleans, respectively. As these results demonstrate, depending on the location and combination of market returns, rent inflation, house price appreciation, and mortgage rates, it could take as little as three years for buying to pay off versus renting—or it could take more than 40 years.

 

It is, of course, impossible to know the future trajectory of these measures, thus the decision poses a financial risk even before considering an individual’s future ability to earn income.

As far as the decision to rent or buy is concerned, other factors are worth considering besides net worth. Renting has the advantage of flexibility. Rental contracts are relatively easy to initiate or break. Investments in the market or savings accounts are quite liquid, particularly compared to selling a house. Taking out a home mortgage also effectively requires many people to invest everything they have in a single, undiversified asset. Moreover, the value of that asset, a home, is often subject to change based on local characteristics. For anyone with volatile or slow-growing income, taking on a home mortgage in this manner prevents the homeowner from diversifying their investments, thus magnifying their financial risk.

Of course, many benefits come with owning a home. For instance, the resident homeowner has much more ability to customize their home to their liking. Many people like the idea of certainty, hoping that buying will allow them to live in the same place for many years. These factors are all subjective though, and potential buyers should carefully weigh them against their (also subjective) financial risks."

Related posts:

Home-Buying Math No Longer Adds Up (2024)

There’s Never Been a Worse Time to Buy Instead of Rent: It is now 52% more expensive to buy a home than to rent one because of climbing mortgage rates (2023)

Are things getting better for apartment renters? (2023)

Apartment Rents Fall as Crush of New Supply Hits Market (2023)

First Annual Drop in Rents Since Pandemic Began, Redfin Says (2023)

The Law of Supply Seems to Be Working in the San Antonio Apartment Market (2023)

Home sale prices, apartment demand and the price of subsitutes (2022)

Increased Supply Is Holding Down Rent Increases (2018) 

Rents are relatively low in San Antonio (2018)

People leaving costly cities while rent falls in other cities due to rising supply (2016)

More housing means lower prices

See Why Lower Mortgage Rates Aren’t Enough to Make Homes Affordable, in Charts: Many hopeful buyers need more than lower rates to afford a house by Veronica Dagher of The WSJ. Excerpts:

"Homeowners with low mortgage rates and a lot of equity feel little pressure to sell, which is keeping inventory low in some regions. Rising costs for home insurance and property taxes in many places are making matters worse."

"The most affordable starter homes, especially in the tight markets of the Northeast and Midwest, still often see intense bidding and rapid price appreciation, said Hannah Jones, senior analyst at Realtor.com, which is operated by News Corp, parent of The Wall Street Journal.

In New York, home prices have more than doubled over the past nine years, reflecting the state’s chronic shortage of inventory. By contrast, prices have climbed about 33% in Texas over the same period, thanks in part to more building, she said."

So where they are not building much, prices are up more than 100% in the past 9 years. Where they are building it is only up 33%, a difference of at least 67 percentage points.

The CPI was 34.5% higher in Sept. 2025 than it was in Sept. 2016. So Texas home prices are just about unchanged after inflation is taken into account. But in New York, home prices are up at least three times as much as the CPI.