4 ms·

Rent is not in the CPI. That's what made Shiller's work useful (comparing housing costs and CPI). Edit: Shiller was wrong (I asked him about this point after

Rent is not in the CPI. That's what made Shiller's work useful (comparing housing costs and CPI). Edit: Shiller was wrong (I asked him about this point after a lecture about his work on historical housing prices).

derekdahmer 8y ago
Rent is definitely included in the US CPI as "Rent of Primary Residence". See all the weights here: https://www.bls.gov/cpi/tables/relative-importance/2017.pdf https://www.bls.gov/cpi/tables/relative-importance/2017.pdf
- kwillets 8y ago
  I was wrong -- I see both rent and what appears to be ownership costs in there.
onlyrealcuzzo 8y ago
I think Shiller's work was useful because housing prices (if I'm not mistaken) are not part of CPI. Housing prices go into much bigger bubbles than rent. If interest rates go up or down, it doesn't very much affect the average person's ability to pay rent. But it has a huge impact on how much the average person can borrow. My understanding for the reason that housing prices aren't included in CPI is because nobody buys houses in cash. So including mortgage payments in theory makes sense -- but it' tricky -- because everyone's mortgage originated at different times and under different circumstances.
- NTDF9 8y ago
  > My understanding for the reason that housing prices aren't included in CPI is because nobody buys houses in cash But they should include the sale value of houses in CPI, otherwise its pointless. Just because the vast majority of people buy houses with a mortgage doesn't mean the sale price isn't a real price
- kwillets 8y ago
  I think my original statement was wrong, but I may have misheard what he told me. Looking up references on housing and CPI I see a lot about how the housing component gives bad signal -- it was rising during the 2008 crash for example. It's easy to see how it lags since people usually only buy at multi-year intervals.

derekdahmer 8y ago

Rent is definitely included in the US CPI as "Rent of Primary Residence". See all the weights here: https://www.bls.gov/cpi/tables/relative-importance/2017.pdf https://www.bls.gov/cpi/tables/relative-importance/2017.pdf

kwillets 8y ago
I was wrong -- I see both rent and what appears to be ownership costs in there.

onlyrealcuzzo 8y ago

I think Shiller's work was useful because housing prices (if I'm not mistaken) are not part of CPI. Housing prices go into much bigger bubbles than rent. If interest rates go up or down, it doesn't very much affect the average person's ability to pay rent. But it has a huge impact on how much the average person can borrow. My understanding for the reason that housing prices aren't included in CPI is because nobody buys houses in cash. So including mortgage payments in theory makes sense -- but it' tricky -- because everyone's mortgage originated at different times and under different circumstances.

NTDF9 8y ago
> My understanding for the reason that housing prices aren't included in CPI is because nobody buys houses in cash But they should include the sale value of houses in CPI, otherwise its pointless. Just because the vast majority of people buy houses with a mortgage doesn't mean the sale price isn't a real price
kwillets 8y ago
I think my original statement was wrong, but I may have misheard what he told me. Looking up references on housing and CPI I see a lot about how the housing component gives bad signal -- it was rising during the 2008 crash for example. It's easy to see how it lags since people usually only buy at multi-year intervals.