3 ms·

Other already gave good answers. The main part is that a house is not a consumption product - it is not "consumed" (used up) in a limited timespan, but rather,

by em500 6y ago

Other already gave good answers. The main part is that a house is not a consumption product - it is not "consumed" (used up) in a limited timespan, but rather, a bundle of a long-durable part (building) and an ultra-durable asset (land). Pretty much all durable assets have increased in price since the 1980s in tandem with falling interest rates[1]. The cause of the long term decline of interest rates is largely unknown. The BLS largely circumvents this by using rents, actual rents for renters, and owner equivalent rents (OER) for owners. This is done by asking owners what they think their house would rent for, and using those increases for the housing/shelter component of CPI. Rents (which make up 1/3 of CPI) have increased faster than the general CPI, but not as much as house prices[1], likely because of the interest rate decrease. There are some other complicating aspects around house prices (city prices increased faster than rural, houses sizes grew while household sizes shrank[3], so part of higher prices is just people buying more). But I believe the main aspects is really falling interests rates. A proper decomposition and attribution of most aspects probably takes months of work, enough for a econ Master theses. That's why I mentioned I don't have the energy for that. Nor do most other bloggers/pop-article writers, so they just go for popular appeal and clicks, by telling you why everything is getting worse and more expensive for you. [1] https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US [2] https://fred.stlouisfed.org/graph/fredgraph.png?g=BLyd https://fred.stlouisfed.org/graph/fredgraph.png?g=BLyd [3] https://azgolfhomes.com/average-home-size-u-s/ https://azgolfhomes.com/average-home-size-u-s/

jpdaigle 6y ago
Wouldn't it make sense for the basket of goods used to compute CPI to try to blend the impact of rents (which are included) with "affordability" of buying a house (maybe measured as the carrying costs of an average property per month, which would exclude principal payments)? Otherwise, because rents and house prices don't always move in lockstep, it's hard to measure the buying power of a dollar over time. When thinking about purchasing power over time or between different cities, I often think of it as "assume I'm buying 1/180th of an average house in that city each month" as part of a representative basket of goods.

by em500 6y ago

jpdaigle 6y ago

Wouldn't it make sense for the basket of goods used to compute CPI to try to blend the impact of rents (which are included) with "affordability" of buying a house (maybe measured as the carrying costs of an average property per month, which would exclude principal payments)? Otherwise, because rents and house prices don't always move in lockstep, it's hard to measure the buying power of a dollar over time. When thinking about purchasing power over time or between different cities, I often think of it as "assume I'm buying 1/180th of an average house in that city each month" as part of a representative basket of goods.