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

fullstackeconomics.com

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

#51

Post by jjoonathan »

shepardrtc wrote: post #36
kasey_junk wrote: post #25

Earlier quoted context omitted.

The Case Shiller index shows affordability was similar in the early 50s to now, that was the heart of the baby boom so I think we can predict that won’t be the reason people don’t start families. The article actually mentions that on an inflation adjusted basis the monthly mortgage was the same now as in the early 80s (due to interest rate differences). It’s basically not true that housing costs are categorically dif…

> It’s basically not true that housing costs are categorically different than any other time. Are you a realtor?

I'm getting "don't think about the price, just think about the monthly payment!" vibes from this post, so if not real estate then definitely some kind of sales.

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

#52

Post by ta988 »

jjoonathan wrote: post #26
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 people in charge have houses and want house prices to go up. That's the beginning, middle, and end of the thinking.

To which you add, people that buy houses want to be able to sell making a large benefit. So you profit from using it (by living in it or renting it) and sell it for more than you did put into it...

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

#53

Post by ntoskrnl »

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.

A place where you live is not a living expense? That line of thought is how we got here in the first place. Things break in a house all the time, and it costs money to maintain. A house should be treated as a depreciating asset. We'd all be better off. (I say this as a homeowner btw)

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

#54

Post by onlyrealcuzzo »

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.

You don't need to purchase a home - but historically - if you did - you've been much better off financially.

It's the same as saying you don't NEED to go to college. No, you don't. You don't need much of anything... But if you did go to college - whether through correlation or causation - statistically you are much better off.

So if college and housing get out of reach for most people - then maybe they will be worse off.

Who knows? Maybe it is all correlation and no causation.

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

#55

Post by Dudeman112 »

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.

>That's an investment, not a living expense.

Owning a home isn't just an investment, it's QoL.

Renting is shit, and raising kids in rented space is shit too. If someone moderately cares about their QoL and isn't enamoured with the idea of popping kids not having their own place won't help with deciding to make kids.

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

#56

Post by havblue »

A partial problem about cpi, as the article discusses, is that it's about what's consumed. So it's primarily beneficial for people living paycheck to paycheck and less beneficial for people trying to sort out the harder-to-commodify question of quality of life.

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

#57

Post by nradov »

ntoskrnl wrote: post #53
nradov wrote: post #28

Earlier quoted context omitted.

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.

A place where you live is not a living expense? That line of thought is how we got here in the first place. Things break in a house all the time, and it costs money to maintain. A house should be treated as a depreciating asset. We'd all be better off. (I say this as a homeowner btw)

A real estate investment is not a living expense. Home maintenance is covered by other items in the CPI basket. I assume you've never read through the list? It's quite extensive.

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

#58

Post by dont__panic »

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…

Interestingly I wonder the exact opposite -- can urban housing really justify these insane valuations when US cities have next to no appeal to me?

I recently moved out of a major city to a small, walkable town so I can get away from the crime, traffic, noise, dirtiness, and car-domination of US cities. It's pretty remarkable to see people and children walk around my neighborhood now -- didn't have that in my major US city before!

Your list of infrastructure issues with rural areas also applies to many major US cities. Let's see:

- no high speed Internet: I have faster internet in a small town than I ever had in any of the major US cities I've lived in. Some cities have fiber in nice neighborhoods, but it's by no means a strong rural/urban divide as you imply here.

- no public transport: Public transit is complete crap in most US cities, with many stuck in a post-covid death spiral thanks to fewer commuters, cut service lines, and rising or perceived-rising crime. There were enough clearly mentally ill people on public transit in my last city that I stopped riding public transit entirely. Where I live now, I can get around entirely on foot or by bike, no need for public transit at all.

- no necessary infrastructure like doctors/pharmacies/grocery stores: I can now walk to the grocery store. I could not in my last city.

- no employment opportunities: Definitely an issue for some fields, but remote work gives more flexibility on this. If anything this is an argument that's weakened over the last 2-3 years.

- schools closing down everywhere: You can only make kids ride so far on the bus in rural America. I know consolidations are an issue in many rural areas, but if you live in a small town, you'll likely be near the only school that remains open. If you live way out in the woods of course you won't have a super close-by school.

On the other hand, rural areas are the only places where many of my non-tech peers ever have a hope of owning a home these days. I suspect their values will perform better over time than million dollar townhomes in rotting city centers with poor internet quality, no walkability, crappy public transit, and lots of quality-of-life issues.

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

#59

Post by lumost »

acd wrote: post #41

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…

This also effects larger Private Equity decisions. Moving a factory costs money, low interest rates in the US make it easier to borrow the money to do so. Lower interest rates also mean that assets appear cheaper relative to wages, meaning the asset price will be bid upwards to make up the difference.

I don't think we have a good understanding of all the effects changing interest rates have.

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

#60

Post by book_mike »

Ignoring what the value of a currency may be I wish buyers would reject bad prices. I really care about what the actual cost of a thing is from dirt to package. The companies that market, make and deliver products should make a profit but I'm not buying their Ferrari. Capitalism start with "No deal, not at that price."
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