[AdamSelene235]

You may want to go to the BLS website and look up Owner's Equivalent Rent. The Bureau of Labor Statistics, calculates a data series called Owners' Equivalent Rent, which measures the implicit financial value of home ownership. The rising cost of home ownership is absolutely included in the CPI.

Since rents are not in line with house prices, this understates housing inflation.

The Federal Reserve commissioned a 52-page study on the subject. In it, they discussed the impact of housing demand on the OER component of the consumer price index. They found:

"Downward pressure on rental prices mainly resulted from an increase in demand for homeownership, which was spurred by historically low mortgage interest rates (see Figure 19). As housing starts and home sales surged in the recent recession and recovery, the national rental vacancy rate jumped from 7.8 percent in the fourth quarter of 2000 to 10.2 percent in the fourth quarter of 2003. This effect was compounded by the way owner-occupied housing prices are measured in the CPI. The CPI uses a rental-equivalence approach, measuring the value of the shelter services an owner receives from his or her home. Price movements in owners' equivalent rent reflect changes in prices of rental units that are comparable in characteristics to owner-occupied homes. Therefore, increased demand for homeownership put downward pressure not only on tenants' rent but also on owners' equivalent rent -- the largest component in the CPI."

I guess you do know more than the markets. You must be a very wealthy individual.

Don't you have any other lines?

[Toddsterpatriot]

Since rents are not in line with house prices, this understates housing inflation.

So, how do you think housing inflation should be calculated? Show it somehow be based on monthly mortgage payment? Using whatever method you think it correct, what is the true inflation rate?

[Mase]

Since rents are not in line with house prices, this understates housing inflation.

Home real estate is subjective to value. Establishing a fair value for housing for the purpose of calculating the CPI is difficult at best. However, hubbubhubbub said that CPI calculations don't include home ownership. Is this a statement you wish to defend?

The old method of calculating housing inflation used the actual increase in home prices. How many people would be affected by this methodology given that, what, less than 10% (?), of Americans buy a new home every year? The old method was notoriously inaccurate. The new method still overstates the impact of rising home values on the US population.

If I bought my home 5 years ago for $250,000 and it's now worth $500,000 what is the inflationary impact of this appreciation on my family? My mortgage is still the same. The only expenses that increase are my property taxes and insurance. This is the case for the vast majority of homeowners every year.

If equivalent rent went up 50% while my home doubled in value, over that five-year period, rents would not be in line with house prices but the rate of inflation would still be overstated.

I agree with Alan Reynolds (Illusory Inflation) that the way in which we calculate CPI overstates the rate of inflation. The bond market seems to agree as well.

Don't you have any other lines?

What, you don't agree with me that anyone who knows more (or better) than the markets ought to be very wealthy? You're right though, I do ask the question often but I never seem to get an answer.

[NeoCaveman]

"Downward pressure on rental prices mainly resulted from an increase in demand for homeownership, which was spurred by historically low mortgage interest rates

This is true. My rent is cheaper than it was 5 years ago for roughly the same size apartment in roughly the same neighborhood.

[been_lurking]

The Federal Reserve commissioned a 52-page study on the subject.

Did they really commission a 52-page study? Or perhaps they commissioned a study that just happened to end up 52-pages long.