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Why the government took home prices out of its main inflation index

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Re: Why the government took home prices out of its main inflation index

#41

Post by acd »

I still argue for that central banks got inflation wrong. Central banks set inflation target to to percent to try and control wage inflation. But wage inflation are globalized. So I argue that central banks tried to control local wage increase on a globalized market which is impossible. Central banks cannot control price increases on global market. Also central banks did not take into account increased housing prices in inflation data.

Central cannot control energy price increase/decrease. central banks cannot control global wage levels. Thus central banks cannot control inflation in a global market.

However interest rates set by central banks greatly effect housing prizes since people calculate what mortage they can afford monthly given bank interest rate.

This inflation rate vs manipulation of interest rate by central banks has inflated house prices.

Re: Why the government took home prices out of its main inflation index

#42

Post by dragonwriter »

thawaya3113 wrote: post #18

The big problem is people believing that there is any one such thing as inflation. There isn’t. The word inflation represents many, including wildly divergent, ideas. And many of the very different things represented by inflation serve very different purposes, and that’s why they’re changed, because different measures of inflation help measure different concepts. Core inflation is just one of many different measures…

> Core inflation is just one of many different measures of inflation.

And not the main one produced by the BLS. Core CPI is the headline CPI with several items removed.

Re: Why the government took home prices out of its main inflation index

#43

Post by dont__panic »

dragonwriter wrote: post #32
recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

> the really psychotic aspect of this all is that in the long run it will destroy the economy as family formation craters Starting a family doesn't require owning a home. Vast numbers of people start families without ever owning a home.

High housing prices == high rental prices == people living in smaller spaces == people deciding to have fewer or no kids because they don't have the space (or money).

Of course, plenty of people start families without solid economic footing. But it's a bit harder to invent space out of thin air than it is to take on debt.

Re: Why the government took home prices out of its main inflation index

#44

Post by leoedin »

dragonwriter wrote: post #32
recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

> the really psychotic aspect of this all is that in the long run it will destroy the economy as family formation craters Starting a family doesn't require owning a home. Vast numbers of people start families without ever owning a home.

The point isn't that you can't start a family without owning a home (obviously that's untrue) but that many people won't want to start a family while living in the relative instability of rented accommodation. That's almost certainly true - I definitely had buying a home as a pre-requisite to starting a family (and I don't regret that decision). There's always going to be some babies, but it's the societal level fertility rate that will drop.

All those people for whom home ownership is just about in reach will delay starting a family. Those living in unsecure shared accomodation won't even consider it. It's pretty clear that fertility rates have fallen significantly in all western countries over the past decade.

Re: Why the government took home prices out of its main inflation index

#45

Post by lumost »

dragonwriter wrote: post #32
recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

> the really psychotic aspect of this all is that in the long run it will destroy the economy as family formation craters Starting a family doesn't require owning a home. Vast numbers of people start families without ever owning a home.

Having started a family recently, there is a strong instinct to move towards more secure foundations. While you may have had a lot of flexibility to scrimp expenses without children, you can't just up and move to cheaper acommodations in a less desirable school district/neighborhood/or longer commute.

Owning a home presents a long-term hedge against financial instability. Due to zoning and other factors, it's often not possible to live in areas which are "good" for children without owning a home. My particular neighborhood in a major city has low cost/quality rentals for college aged folks, reasonable subsidized housing options, and condos. If one were to rent without subsidy for a family, they would likely be pushed into a luxury unit and pay an unreasonable and highly inflationary sum.

Re: Why the government took home prices out of its main inflation index

#46

Post by axg11 »

hnthrowaway0315 wrote: post #12

I think one should have one's own inflation index. Basically I'd layout the expenses (food, utility, mortgage, child day care, etc.) and go from there. Some expenses inflates every year (food/utility), some are fixed for 5 years and then maybe jump up/down (mortgage, depending if Fed is cutting or hiking rates).

This would be a cool idea for a service - I would pay for it. Privacy issues aside, it's a shame that transaction data doesn't include itemized information (e.g. grocery bills only show up as one large charge). I'm sure there are many items I regularly purchase that have changed price without me noticing.

Re: Why the government took home prices out of its main inflation index

#47

Post by bitxbitxbitcoin »

mschuster91 wrote: post #35
recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

> home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) Isn't the definition of a bubble that it has the capability to pop and then eventually pops? At least for urban housing, I see no way of that even being remotely possible, neither for the US nor here in Europe. Rural areas simply are too far left behind to support decent human life - no high speed Internet, no public transp…

The urban flight to the rural has just as many issues pushing it. Starlink also makes rural life more appealing for some even with all the other rural issues.

Re: Why the government took home prices out of its main inflation index

#48

Post by Supermancho »

mschuster91 wrote: post #35
recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

> home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) Isn't the definition of a bubble that it has the capability to pop and then eventually pops? At least for urban housing, I see no way of that even being remotely possible, neither for the US nor here in Europe. Rural areas simply are too far left behind to support decent human life - no high speed Internet, no public transp…

> Isn't the definition of a bubble that it has the capability to pop and then eventually pops?

It's a description of a linear trend over a period that rises and falls. Why the trend falls (or how sharply) is not related. A housing "hump" isn't the preferred metaphor, although it's more apt. People like to think that a trend bubble has to "pop" because they imagine a physical bubble instead of a hump in a line.

Re: Why the government took home prices out of its main inflation index

#49

Post by smn1234 »

nradov wrote: post #28
recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

The CPI includes rent (and owner's imputed rent). No one needs to purchase real estate. That's an investment, not a living expense. Millions of people have started families in rented homes.

agreed to an extent - have rents prices (adjusted) ever been so high throughout history to make renting more difficult to afford than owning in many cases

Re: Why the government took home prices out of its main inflation index

#50

Post by onlyrealcuzzo »

dragonwriter wrote: post #32
recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

> the really psychotic aspect of this all is that in the long run it will destroy the economy as family formation craters Starting a family doesn't require owning a home. Vast numbers of people start families without ever owning a home.

Source?

The VAST majority of non-single parent families in the US still alive today owned a home.

Maybe current trends are different since home ownership rates are low in young people. But family formation rates are also lower than normal.

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