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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

#101

Post by thatfrenchguy »

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…

You’re forgetting about inflation here. Sure you’re paying 300k of interest for a 400k house at 5%, but your mortgage payement keeps decreasing in real terms.

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

#102

Post by bell-cot »

leoedin wrote: post #44
dragonwriter wrote: post #32

Earlier quoted context omitted.

> 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 fert…

I think this is far more situational. ~20 years ago, the passably well-to-do apartment complex I was living in was (in some sections) absolutely crawling with children. Many of the units had sliding glass doors opening onto nice courtyards, it was a block or two off the main roads in a decent residential neighborhood, and there was a city park half a block away. If your unit fronted on one of those courtyards, you either liked the "all day, every day" noises of kids playing (and shrieking a fair amount), or else you moved.

OTOH, that apartment complex was designed and built ~1965 or so, when having kids was far more the American social norm. And their business model seemed carefully tuned to attracting longer-term renters.

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

#103

Post by thatfrenchguy »

dont__panic wrote: post #58
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…

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…

> next to no appeal to me

That’s sort of the point. I’d kill myself before I’d live in a small town again instead of San Francisco. I can walk to 10 grocery stores, 20 restaurants, literally find all the food I want, and the public transit is pretty good. Who wants to raise kids in rural areas where there won’t be any opportunities for them?

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

#104

Post by 01100011 »

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.

Anecdotal: my wife and I are waiting for a home to start a family. We're not even going to stop contraception until we move in. The second we do, we'll start trying.

Fortunately it looks like a 10% correction is all we need, and, fingers crossed, it looks to be coming.

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

#105

Post by irrational »

willcipriano wrote: post #92
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 don't think that's entirely fair. When I bought my house 6 years ago I looked at the monthly payment and compared it to rent in the area. For my mortgage (and a small down payment) at the time I could rent something like a fairly run down three bedroom apartment or I could own a run down three bedroom house. If you can live somewhere for free you can think about it in those terms (and I think about smaller purchase…

My monthly mortgage payment on a nearly 4,000 sq foot home on nearly an acre is about the same as local monthly rental of a 2 bedroom apartment. I can't decide if I got a deal or if local rental prices are crazy high.

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

#106

Post by hattmall »

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.

Technically many stores provide level-3 data with cc transactions, which include itemized details, but no idea how a consumer would get it. The exchanges give better rates the more details the merchant provides, level 3 being the highest detail and lowest rates so many of the large merchants provide this data. It's one way they avoid paying sign up bonuses on gift card purchases.

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

#107

Post by em-bee »

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).

in germany and austria time limited renting contracts are illegal. renting is always month to month, but landlords have no rights to evict anyone ever unless they do damage to the property or fail to pay their rent for at least a few months, and they still may have to sue to actually make the eviction stick. the only exception is landlords who only rent out a single home, and they can prove that they now need that home for themselves (or for their kids). these are not common though. most landlords are agencies that manage multiple properties.

so as long as you pay your rent and don't do anything illegal or damaging, you can't be evicted. the worst that can happen is a rise of the rent, but even that is often limited to not go beyond the average market rate for the area.

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

#108

Post by tjr225 »

ghaff wrote: post #87
bitxbitxbitcoin wrote: post #47

Earlier quoted context omitted.

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.

Could you? I have been remote for about 4 years and I have difficulty doing my job if my internet goes out for even an hour during my working time.

I also have issues doing my job if I can’t stream audio/video due to speed issues- and this happens even with a hardwired connection on occasion.

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

#109

Post by mywittyname »

sokoloff wrote: post #9
gilbetron wrote: post #4

For those that only read the headline, the article is much more interesting. There's a paper that recreated what the inflation rate would have been with the old method, and it tracks the new method closely, but just has more volatility. Plus, "the government" didn't take home prices out, they just switched to a different approach to tracking them.

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.

The new methodology is clearly the better one.

But headlines like this serve to reinforce the notion that somehow the "official" inflation figures are wrong. Which gives power to politicians who deliberately push this narrative; which is to day, dishonest ones.

The fact is, lots people hear that "housing prices" aren't included in the CPI, and interpret that as housing costs are not included. There is no nuance for most people; for them, housing "prices" and housing "expenses" are the same thing.

Normal people who are not economists or interested in economics at all are voters. It behooves people in the industry to speak clearly and plainly about these topics. Failure to do so hands that opportunity over to unscrupulous pundits who will speak plainly, but with a bend that favors their political opinions.

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

#110

Post by gedy »

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…

Many people will, sure. But there's many people who either need or want to sell and that puts pressure on prices. Seen this many times in past decades in California at least.
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