Live data from Hacker News

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

fullstackeconomics.com

141–150 of 344 posts

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

#141
post #81

Earlier quoted context omitted.

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).

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 paying off a mortgage entirely, my housing costs will be effectively repairs, property tax and utilities. That's a tiny fraction of rent. Meanwhile over 25 years property prices have more than tripled so it's likely the renter's rent would have gone from $1500/month to $4500/month or so. If you have $7000/month for both cost of living and savings then putting $5500/month into whatever assets you choose now that your home is paid off is going to generate much better returns than putting $2500/month into whatever asset you choose after paying off your inflated rent.

Alternatively, you can buy the home purely as an investment rather than a place to live. In this case, you have rental costs either way but you don't just make the capital gains on the home you also make rental income from renting it out. Typically rental income can be around 6% of property value. If you add that to the 7.5% returns to property YoY since 2001 you get 13.5% returns. You will have some expenses to deduct from that so your net returns might end up around 11%. That's still demolishing the stock market returns.

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

#142

Earlier quoted context omitted.

Interest rate below inflation? I don’t care about that 300k, I would have lost it to inflation anyways. Mortgages let you pay 2052 dollars against 2022 prices and that’s under appreciated by the financially illiterate.

Exactly. My mortgage is at 2.25%, I'd be a fool to pay that off early in the current climate. I am stuck with PMI and I might consider refinancing or something like that in the future but if I can't get the lower rate then it might be worth it to keep paying. One of the hardest things for me w.r.t. finances is removing the emotional aspect. I don't get worked up about a fee added onto my mortgage because when looking…

You can also eliminate your PMI if you can appraise your home at a price that escapes the difference, so keep an eye on that.

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

#143

Earlier quoted context omitted.

https://www.cdc.gov/nchs/data/nvsr/nvsr70/nvsr70-17.pdf Number of births have been dropping since 2008ish, from this graph by the CDC. Year 2022 - year 2008 = 14 Does that means starting this year, high school enrollment will be dropping year over year? In 4 years time, college enrollment will be dropping year over year. In 8 years time, labor enrollment will be dropping year over year. As for housing, there was a ba…

Yes, college enrollment, high school enrollment, and labor participation are all down, starting last year. People can't afford new houses with a mortgage with rising interest rates. Fewer young adults ("Gen Z") are choosing, proportionally, to go to college. The plummeting birth rate and the highly strict immigration controls as well as our political instability have all sent the message to international students tha…

>Fewer young adults ("Gen Z") are choosing, proportionally, to go to college.

It's important to recognize why this is happening. The world did a good job at disenfranchising young adults (gen Z + tail-end millennial), and now countries are reaping the rewards from it. The solution is in front of their noses and they are not willing to take it. I'd turn it around and say all those countries are reaping what they sowed.

Give these people a relatively stress-free way to live life the way it benefits society, while having it benefit themselves, and these problems would stop very soon. Them importing skilled workers and refusing students without money alludes to this. If you're that desperate for workers, you don't lock down any and all ways for people without the skills to start picking them up and getting rewarded for it.

I just don't buy the idea of leaders failing the very basics of leadership, 'give people an incentive to do the things you want them to do'. Call it a conspiracy if you want, but it sounds like leaders want to have their cake and eat it too.

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

#144

Earlier quoted context omitted.

Interest rate below inflation? I don’t care about that 300k, I would have lost it to inflation anyways. Mortgages let you pay 2052 dollars against 2022 prices and that’s under appreciated by the financially illiterate.

Exactly. My mortgage is at 2.25%, I'd be a fool to pay that off early in the current climate. I am stuck with PMI and I might consider refinancing or something like that in the future but if I can't get the lower rate then it might be worth it to keep paying. One of the hardest things for me w.r.t. finances is removing the emotional aspect. I don't get worked up about a fee added onto my mortgage because when looking…

I'm guessing your mortgage doesn't remove PMI after a certain number of years or 80% LTV?

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

#145
post #142

Earlier quoted context omitted.

Exactly. My mortgage is at 2.25%, I'd be a fool to pay that off early in the current climate. I am stuck with PMI and I might consider refinancing or something like that in the future but if I can't get the lower rate then it might be worth it to keep paying. One of the hardest things for me w.r.t. finances is removing the emotional aspect. I don't get worked up about a fee added onto my mortgage because when looking…

You can also eliminate your PMI if you can appraise your home at a price that escapes the difference, so keep an eye on that.

I thought at some point I read that FHA loans don't have that? I'll look more into again in a few years when my house will appraise high enough.

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

#146
post #142

Earlier quoted context omitted.

Exactly. My mortgage is at 2.25%, I'd be a fool to pay that off early in the current climate. I am stuck with PMI and I might consider refinancing or something like that in the future but if I can't get the lower rate then it might be worth it to keep paying. One of the hardest things for me w.r.t. finances is removing the emotional aspect. I don't get worked up about a fee added onto my mortgage because when looking…

You can also eliminate your PMI if you can appraise your home at a price that escapes the difference, so keep an eye on that.

Certain loans (like fha loans) have PMI for life

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

#147

Earlier quoted context omitted.

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…

One mistake a lot of people make is comparing their monthly mortgage payment to rent. You're not comparing apples to apples. You should be comparing only the interest portion of the payment to rent. The principal portion is money you're paying back into your own pocket in the form of home equity. Your actual "money that goes away like rent" expense is the interest. When you use this as your comparison, a lot more ren…

You can discount the principal payments somewhat, too, because you'll lose 10% of total value selling.

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

#148

Earlier quoted context omitted.

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…

One mistake a lot of people make is comparing their monthly mortgage payment to rent. You're not comparing apples to apples. You should be comparing only the interest portion of the payment to rent. The principal portion is money you're paying back into your own pocket in the form of home equity. Your actual "money that goes away like rent" expense is the interest. When you use this as your comparison, a lot more ren…

Rent vs Buy has fairly standard calculators, especially when you're wealthy enough to factor in opportunity cost.

If you're able to take a 30 year loan w/ a 2.7% interest rate and invest the rest of the equity, your house is cheaper than someone who buys it outright in cash.

The only time I would disagree with you, however, is for poor people. "Mortgage principle is not an expense" is correct over a long-horizon, but families living month-to-month that somehow managed to purchase a house are severely unlikely to be able to really capitalize on any value generated from that. I think your comment primarily applies to upper middle-class and wealthy people.

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

#149

Earlier quoted context omitted.

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…

One mistake a lot of people make is comparing their monthly mortgage payment to rent. You're not comparing apples to apples. You should be comparing only the interest portion of the payment to rent. The principal portion is money you're paying back into your own pocket in the form of home equity. Your actual "money that goes away like rent" expense is the interest. When you use this as your comparison, a lot more ren…

It’s also important to include a sinking fund for expected maintenance costs when you own.

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

#150
post #130

Earlier quoted context omitted.

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 m…

How do you speak clearly and plainly about these topics? It's factually true housing prices aren't included in the CPI, but it's not easy to explain why and how replacing it with the somewhat abstract notion of housing services , estimated by owner equivalent rent is conceptually superior.

I would say the easiest way to explain it is, as implied by the "C", that CPI is intended to track consumption. Houses aren't normally consumed. Your house a decade from now is expected to be, more or less, the same house you purchased originally. You expect, more or less, to be able to sell it for at least as much as you paid for it originally. Whereas a consumable good, like food, is used up once you eat it and then you have to buy it again. Housing services are more like food. They are consumed. You use it up, to some meaning of use, and then you have to eventually buy it again to use it again.

However, I'm not sure that's the struggle people have. From what I observe, they question if CPI is the best metric for measuring inflation, not whether or not durable assets should be considered consumables.

Post reply on HN