5 ms·

Imputed rent is meaningless since there’s no market discovery of the price. It’s like asking what the position and momentum of particle is simultaneously. You

by zbzbBn 6y ago

Imputed rent is meaningless since there’s no market discovery of the price. It’s like asking what the position and momentum of particle is simultaneously. You can’t know the price of something you don’t intend to rent unless you rent it, but you’re not renting it because you have no intention of renting. Even if you “pretend” to rent by putting out a fake add and then not signing the rental agreement, that doesn’t count. That only gives you the demand side of the price. Since you know that you don’t intend to actually rent your home, you will not give serious consideration the opportunity cost of renting out your home.

TheCoelacanth 6y ago
It's not meaningless. It's an estimate based on market data. Every component of CPI is an estimate, that doesn't mean it's meaningless.
gruez 6y ago
>Even if you “pretend” to rent by putting out a fake add and then not signing the rental agreement, that doesn’t count. That only gives you the demand side of the price. Since you know that you don’t intend to actually rent your home, you will not give serious consideration the opportunity cost of renting out your home. The point of the fake ad is to gauge what the current market clearing price is, which presumably already takes into account the current supply/demand. It's not any different than using the current stock price to judge what an entire company is worth (market cap), even though only a fraction of the shares are actually on the order book.
- Supermancho 6y ago
  > It's not any different than using the current stock price to judge what an entire company is worth (market cap) It's interesting to note, the stock price is a small part of a company's valuation. There are many different structures for stock issuance.
- svajsvsj 6y ago
  Two problems with that: 1. Clearing price assumes efficient markets. My house in my neighborhood is one of maybe three (probably much less judging by the rental units friends of similar means live in) like it that will be available throughout the year. I don’t agree a fake add will get the clearing price in these conditions. Even if I put up an ad to rent a room in a student house -one of tens of thousands in a typical college town- the hypothesis fails since students are extremely sensitive to distance to their main building, nearby amenities, availability of parking, etc. 2. Even in the stock market the clearing price is dubious; the market cap of a company is a useful bit of fantasy. By multiplying the clearing price by the outstanding shares there is an implicit and incredible assumption that all the shareholders value the shares equally - which is obviously not true, some share-holders believe the stock has more promise, others are sentimental (the founder’s family members). And that ‘price*shares == company worth’ is not true is evident in mergers and acquisitions which can be very acrimonious events. If the clearing price times the outstanding shares were a fair measure of the market cap, why would rational investors care about a merger except for the costs associated w/ closing? But bringing this all back to the OP. Housing cost for the majority of the middle class is not meaningfully included in the CPI, except with a flawed metric.
  - gruez 6y ago
    >1. Clearing price assumes efficient markets. My house in my neighborhood is one of maybe three (probably much less judging by the rental units friends of similar means live in) like it that will be available throughout the year. Yes, low liquidity in the rental market means that there's a spread in the estimates, but I don't see how it follows that "imputed rent is meaningless". The low liquidity can cause the estimate to be both above or below reality. Do you have evidence that the inflation numbers for the housing component of the CPI is totally detached from actual market prices? >2. Even in the stock market the clearing price is dubious; the market cap of a company is a useful bit of fantasy. By multiplying the clearing price by the outstanding shares there is an implicit and incredible assumption that all the shareholders value the shares equally - which is obviously not true, some share-holders believe the stock has more promise, others are sentimental (the founder’s family members). Again, this seems to be more of a complaint that the market cap figure isn't 100% accurate, rather than that the number is "meaningless" as claimed in your original comment. It seems like the entirety of your argument (for both imputed rent and market cap) is "well there are these factors that causes the number to be inaccurate, therefore the number is totally meaningless and should be ignored".

by zbzbBn 6y ago

TheCoelacanth 6y ago

It's not meaningless. It's an estimate based on market data. Every component of CPI is an estimate, that doesn't mean it's meaningless.

gruez 6y ago

>Even if you “pretend” to rent by putting out a fake add and then not signing the rental agreement, that doesn’t count. That only gives you the demand side of the price. Since you know that you don’t intend to actually rent your home, you will not give serious consideration the opportunity cost of renting out your home. The point of the fake ad is to gauge what the current market clearing price is, which presumably already takes into account the current supply/demand. It's not any different than using the current stock price to judge what an entire company is worth (market cap), even though only a fraction of the shares are actually on the order book.

Supermancho 6y ago
> It's not any different than using the current stock price to judge what an entire company is worth (market cap) It's interesting to note, the stock price is a small part of a company's valuation. There are many different structures for stock issuance.
svajsvsj 6y ago
Two problems with that: 1. Clearing price assumes efficient markets. My house in my neighborhood is one of maybe three (probably much less judging by the rental units friends of similar means live in) like it that will be available throughout the year. I don’t agree a fake add will get the clearing price in these conditions. Even if I put up an ad to rent a room in a student house -one of tens of thousands in a typical college town- the hypothesis fails since students are extremely sensitive to distance to their main building, nearby amenities, availability of parking, etc. 2. Even in the stock market the clearing price is dubious; the market cap of a company is a useful bit of fantasy. By multiplying the clearing price by the outstanding shares there is an implicit and incredible assumption that all the shareholders value the shares equally - which is obviously not true, some share-holders believe the stock has more promise, others are sentimental (the founder’s family members). And that ‘price*shares == company worth’ is not true is evident in mergers and acquisitions which can be very acrimonious events. If the clearing price times the outstanding shares were a fair measure of the market cap, why would rational investors care about a merger except for the costs associated w/ closing? But bringing this all back to the OP. Housing cost for the majority of the middle class is not meaningfully included in the CPI, except with a flawed metric.
- gruez 6y ago
  >1. Clearing price assumes efficient markets. My house in my neighborhood is one of maybe three (probably much less judging by the rental units friends of similar means live in) like it that will be available throughout the year. Yes, low liquidity in the rental market means that there's a spread in the estimates, but I don't see how it follows that "imputed rent is meaningless". The low liquidity can cause the estimate to be both above or below reality. Do you have evidence that the inflation numbers for the housing component of the CPI is totally detached from actual market prices? >2. Even in the stock market the clearing price is dubious; the market cap of a company is a useful bit of fantasy. By multiplying the clearing price by the outstanding shares there is an implicit and incredible assumption that all the shareholders value the shares equally - which is obviously not true, some share-holders believe the stock has more promise, others are sentimental (the founder’s family members). Again, this seems to be more of a complaint that the market cap figure isn't 100% accurate, rather than that the number is "meaningless" as claimed in your original comment. It seems like the entirety of your argument (for both imputed rent and market cap) is "well there are these factors that causes the number to be inaccurate, therefore the number is totally meaningless and should be ignored".