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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

#81

Post by chii »

onlyrealcuzzo wrote: post #54
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.

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…

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

it's not the purchase of the home that made you better off financially, but the ability to purchase a home.

If you had that ability, investing in another asset at the same leverage level (such as shares) would net you even more financial income (obviously, its higher risk).

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

#82

Post by ghaff »

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…

Is it your contention that the net migration out of many US urban centers that was going on through about the 1990s can never happen again? In spite of the fact that it's probably possible to do more things remotely than it was back then?

There's also a lot between a city center and true rural wilds of Wyoming (especially the way the US Census defines it). There's a lot of pretty affordable housing and land within an hour or two of most major cities with decent infrastructure, hospitals, etc. No there's not much public transportation but that's true of anywhere that people are spread out.

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

#83

Post by endisneigh »

mushbino wrote: post #30
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…

Back when it was normal to buy a house and support a family on a single income? Nearly impossible now. Sounds like there are some serious flaws with that index.

You mean when women were generally discouraged from getting jobs people were paid more? What a shocker.

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

#84

Post by notriddle »

axg11 wrote: post #46
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.

If you want to include shrinkflation, it’s going to wind up involving a lot of data entry.

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

#85

Post by carlisle_ »

chii wrote: post #73
leoedin wrote: post #44

Earlier quoted context omitted.

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 fert…

> won't want to start a family while living in the relative instability of rented accommodation it should be alleviated by making rental accommodation more stable - such as a longer term contract. What if you had a 30 year contract rental (with built-in, but known ahead of time increases).

That’s just a mortgage with extra steps…

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

#87

Post by ghaff »

bitxbitxbitcoin wrote: post #47
mschuster91 wrote: post #35

Earlier quoted context omitted.

> 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.

Starlink is a real gamechanger. My dad's house in Maine a little ways from a small city had 1Mbps "broadband." Houses further down the road had nothing wired and all the Plan Bs (conventional satellite/hotspot) were lousy options. While Starlink isn't 100% reliable I could actually work from there if I wanted to.

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

#88

Post by sokoloff »

lumost wrote: post #67
sokoloff wrote: post #9

Earlier quoted context omitted.

I think the “new” (now 39 years old) method is superior overall, but I think it’s entirely factually correct that they took home prices out of the index. They did not take housing expenses out, which is what many people whose sole exposure to economics is via memes seem to think/be encouraged to think.

I think the methodological flaw here is the assumption that nominal housing prices are elastic . Housing expenses fell over the last ~30 years as interest rates fell, however it's highly unlikely that the reverse will hold true to the same tune. If interest rates go to 10%, people will stop trading housing rather than take a nominal hit and be under water on a mortgage. This means that as interest rates rise, housing…

I think house sale prices are well understood to be sticky. (Sellers really hate the thought of bringing a check to the closing, so when prices are such that their equity after commission goes negative, housing listings and sales do indeed slow down.)

I don't think the CPI methodology makes any assumption about elasticity of any particular component, though; it's a measurement process. People who are making interpretations or predictions based on CPI might be using faulty assumptions.

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

#89

Post by zajio1am »

dopylitty wrote: post #21
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…

This is a good point. The government really shouldn’t be producing a single number and saying that’s “the” inflation rate. It muddies the waters and makes it easy to think that the economy is some magic system where things just happen rather than the sum of choices by individual companies and consumers. If OPEC decided to stop producing oil altogether you bet there would be “inflation” caused by oil prices but that d…

> If OPEC decided to stop producing oil altogether you bet there would be “inflation” caused by oil prices but that doesn’t mean the FED should be goaded into making changes to policy.

Why should not? Inflation is just change of price level. Price level is just ratio of circulating money to real production. If OPEC decided to stop producing oil, that would create massive negative shock to real production, so FED should restrict circulating money to maintain that ratio.

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

#90

Post by Decabytes »

jjslocum3 wrote: post #76

Mortgage loan officers (and also car salesmen) do all in their power to redirect people away from the fact that they're going to fork over e.g. $600k in total interest and principle for a $300k sticker-price house over 30 years. They do this by focusing on the monthly payment rather than the actual total spend. Convincing buyers that monthly out-of-pocket spend is somehow a proxy for the actual purchase price is a po…

I was pleasantly surprised that Rocket Mortgage (Formerly Quicken Loan) actually has a calculator on the dashboard when I view my loan information that shows me how much interest I'll pay over the lifetime of the loan. I can even change my monthly payments and see how it will effect the lifetime interest of my loan and how much faster I will pay it off.
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