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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

#321

Post by CrazyStat »

binarybits wrote: post #27
hammock wrote: post #15

Earlier quoted context omitted.

Shadowstats.com has been tracking inflation with old methods for a long time

OP author here. I wrote a shadowstats debunker back in November: https://fullstackeconomics.com/no-the-real-inflation-rate-is... tldr: they don't actually reconstruct the old methodology. They add a fudge factor based on how much they think the new methodology increases the inflation rate. And that estimate is based on a basic math error.

Thanks, this will be useful next time someone points to shadow stats.

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

#322

Post by CincinnatiMan »

adam_arthur wrote: post #277
CincinnatiMan wrote: post #266

Earlier quoted context omitted.

I don't think it's that simple. Maybe if someone has lots and lots of investment homes, they may think that way, but someone owning a single home shouldn't be excited about its price inflating--it's not like you can sell it and reap the profits, because you'll just be buying another similarly inflated house.

You can do a cash out refi and invest into other higher yielding cashflowing assets. People do this all the time for e.g. renovations, additions etc

You eventually have to pay that back though, right? So the benefit is fleeting.

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

#323

Post by throw0101a »

onlyrealcuzzo wrote: post #282
throw0101a wrote: post #225

Earlier quoted context omitted.

> You don't need to purchase a home - but historically - if you did - you've been much better off financially. [citation needed] Per the The Credit Suisse Global Investment Returns Yearbook 2018 , the global return for real estate from 1900 to 2017 was 1.3%, while stocks returns 5.2%: * https://www.credit-suisse.com/media/assets/corporate/docs/ab... Rent is often cheaper than mortgage payments, and is very more often…

Real estate is leveraged - often times in the US 33:1. Stocks aren't. You also have to factor in that it's a hedge against inflation on rent, and that part of your rent payment is going to principal, and that your mortgage interest is tax deductible. If you think the average return for the S&P 500 unleveraged beats owning a PRIMARY RESIDENCE on 5:1 leverage, when your marginal tax rate is 45%, and interest rates are…

> Real estate is leveraged […]. Stocks aren't.

Leveraging in stocks:

* https://www.investopedia.com/terms/m/marginaccount.asp

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

#324

Post by TimPC »

chii wrote: post #304
TimPC wrote: post #141

Earlier quoted context omitted.

Depends where you're talking about in Canada from 2001 to present day the average return of housing has beat the stock market. There is also a question of what amounts you're investing. Paying down a mortgage is sort of like having ever declining rent, but if you're investing in the market instead you face ever increasing rent so the amount of the investment is different between the two scenarios. For instance, after…

> For instance, after paying off a mortgage entirely, my housing costs will be effectively repairs, property tax and utilities. That's a tiny fraction of rent. no, if you paid off the mortgage, then the cost of your "rent" is just the cost of the capital sitting in the house (plus those maintenance costs you mentioned). There's no such thing as free living. it is possible that rent is more expensive - but over time,…

In a world of zoning and NIMBYs I very much doubt the market adjusts in any way that resembles an efficient market.

At most the portion of the rent I get from my capital is the difference between deploying the capital in the market and the return to housing. Since housing has historically beat the market that suggests a zero or negative rent for investing in housing.

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

#325

Post by 1270018080 »

Geonode wrote: post #307
1270018080 wrote: post #298

Earlier quoted context omitted.

A single family home is never the ideal size for any amount of geography.

A single family home is the ideal, period. Ideally with ten or more acres. Some people would increase density until we're all living in Blade Runner hoping it would make rents drop.

If your goal is for housing to be affordable for the average person, a single family home is never the ideal for any piece of geography. It just comes down to priorities.

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

#326

Post by coding123 »

imtringued wrote: post #315
coding123 wrote: post #211

Earlier quoted context omitted.

Rural for me is 10 acre plots - can't see your neighbor too much. Rural for others is 40 acre plots. For some it's 400-1000.

That is illogical. In Germany rural means a town surrounded by hundreds or thousands of hectares. What you mean is just a special kind of suburbia. Having your houses this far apart will result in extremely high infrastructure costs.

What are the infrastructure costs? Roads are dirt. Internet is Starlink. Power is solar. Sewer is septic. Water is well. Garbage is a drive once a week.

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

#327

Post by panda88888 »

credit_guy wrote: post #311
cudgy wrote: post #300

Earlier quoted context omitted.

So your approach is to maximize tax revenue for the inefficient governments to hopefully use for some purpose? Seems very ineffective to have loads of empty houses. What other purpose should a residential home serve than to house people that need housing? The trend toward homes being investment and stores of value for the wealthy is contrary to the goals of building healthy communities that are not filled with ghost…

If you remove the artificial constraints on supply, then house prices will go down, and people will stop considering houses as an investment. The price of a house should go down in time, just like the price of a car goes down in time. Or the price of any other good.

I believe in most cases the structure value does go down (or at most stay constant), it is the value of the land that is going up.

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

#328

Post by cudgy »

credit_guy wrote: post #311
cudgy wrote: post #300

Earlier quoted context omitted.

So your approach is to maximize tax revenue for the inefficient governments to hopefully use for some purpose? Seems very ineffective to have loads of empty houses. What other purpose should a residential home serve than to house people that need housing? The trend toward homes being investment and stores of value for the wealthy is contrary to the goals of building healthy communities that are not filled with ghost…

If you remove the artificial constraints on supply, then house prices will go down, and people will stop considering houses as an investment. The price of a house should go down in time, just like the price of a car goes down in time. Or the price of any other good.

Yes, supply side restrictions should be reduced.

However, artificial demand must be dealt with as well, or we overbuild resulting in a bunch of empty homes. Another disadvantage to only dealing with the supply side is the prices of building materials will be unnecessarily high due to additional artificial demand from investors building homes as stores of value.

Finally, supply side only solution creates a potential nonlinear event where investors dump once the homes start to depreciate. A seesawing which the Fed has bolstered with artificially low rates across many asset classes. Not necessarily a bad thing altogether for the housing asset class, but it seems inefficient from a resource standpoint.

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

#329

Post by cudgy »

panda88888 wrote: post #327
credit_guy wrote: post #311

Earlier quoted context omitted.

If you remove the artificial constraints on supply, then house prices will go down, and people will stop considering houses as an investment. The price of a house should go down in time, just like the price of a car goes down in time. Or the price of any other good.

I believe in most cases the structure value does go down (or at most stay constant), it is the value of the land that is going up.

Land should also go down (generally) in price though if the supply of buildable land goes up along with reduced supply restrictions. Of course, this only works in areas where there is abundance of buildable land near the desirable locations or nearby buildable areas that provide a decent substitute. Obviously, areas like the San Francisco peninsula and Manhattan where there is limited land due to surrounding water, land prices are likely to continue to go upward.

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

#330

Post by credit_guy »

cudgy wrote: post #329
panda88888 wrote: post #327

Earlier quoted context omitted.

I believe in most cases the structure value does go down (or at most stay constant), it is the value of the land that is going up.

Land should also go down (generally) in price though if the supply of buildable land goes up along with reduced supply restrictions. Of course, this only works in areas where there is abundance of buildable land near the desirable locations or nearby buildable areas that provide a decent substitute. Obviously, areas like the San Francisco peninsula and Manhattan where there is limited land due to surrounding water, l…

Manhattan is surrounded by water, but guess what, there are subways that go to Brooklyn, Queens, the Bronx, Jersey City and Hoboken. If your office is in downtown Manhattan, you can get there faster if you live in Brooklyn than if you live in Haarlem (which is part of Manhattan).

In principle the supply side has natural constraints, but they are easily 2 times above what has been built until now.

You can think of it this way: the population density of Manhattan is about 27000/km2. The entire NYC has a density of about 10000/km2, while Jersey city has 7000/km2.

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