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.
In many cases it alters the family's spending habits as they extract equity from their homes.
I agree with Alan Reynolds
I'm a supporter of CATO, but this one issue we don't see eye to eye on. I've even briefly argued the subject with William Niskanen.
Its a Chicago vs. Austrian thing. Only time will tell (of course both camps will simply have different interpretations)