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> Its purpose is to determine changes in the cost of using a stock of dwellings. https://www150.statcan.gc.ca/n1/pub/62f0014m/62f0014m2017001-eng.htm https://w

by acover 5y ago

> Its purpose is to determine changes in the cost of using a stock of dwellings. https://www150.statcan.gc.ca/n1/pub/62f0014m/62f0014m2017001-eng.htm https://www150.statcan.gc.ca/n1/pub/62f0014m/62f0014m2017001... This is difficult for me to understand as there is no market price for what they are trying to estimate. They have a thousand knobs to guess at. It reads a bit like they are grouping people who’ve own their home for 50 years in with those who just bought - similar to how they calculate rent. For example, they weight mortgage interest at less than utilities. For a new homeowner, mortgage interest is probably 5-10x utilities. Regardless, they explicitly ignore the experience of a first time home buyer, who are pretty trapped into renting. A house is not just an investment, it’s a different experience owning versus renting.

gruez 5y ago
>It reads a bit like they are grouping people who’ve own their home for 50 years in with those who just bought - similar to how they calculate rent. >[...] For a new homeowner, mortgage interest is probably 5-10x utilities. Sounds like you're upset that the index is an average of everyone, and therefore doesn't recognize your individual struggles? >A house is not just an investment, it’s a different experience owning versus renting. Eating food grown yourself is a different experience than shopping at the supermarket. Should we factor farm land cost into the CPI?
- acover 5y ago
  When measuring the price index of natural gas should you average in contracts written 50 years ago but still active, regardless of whether that price is currently available on the market? > Eating food grown yourself is a different experience than shopping at the supermarket. Should we factor farm land cost into the CPI? If 70% of the population paid for a "gardening experience" like they do for gym memberships, etc then yeah I would expect that to be in CPI.
lottin 5y ago
I think, you're missing the point. Houses are consumed over very long periods of time, which means the price at which you're purchasing your home today is going to affect your future cost of living for many, many years. Therefore, if we are trying to measure the current cost of living, current house prices are pretty much irrelevant.
- acover 5y ago
  How I interpret their methodology is they are trying to estimate the change in costs for existing owners. Is that correct? What I feel is that mortgage payments have doubled in 10 years for new buyers. However, because new buyers are a small fraction of existing buyers this doesn't rapidly affect inflation as they calculate it. Thanks for trying to explain it, I feel pretty dumb as I'm clearly missing something obvious.
  - lottin 5y ago
    Conceptually, it's useful to think of a house as an investment good that produces housing services (shelter, living space, etc.). These housing services are what you get when you rent a house. If you're a home owner, you don't pay rent explicitly, but it really is as if you had rented out your house to yourself and you were paying rent to yourself. Therefore the cost of housing services is best estimated through rent prices. The other thing is the cost of the house itself, not the housing services. This includes the purchasing cost and the cost of repairs that you make periodically. The repairs are not a problem but the purchasing cost would need to be spread over the useful life of the house. If the house is bought on credit then the buyer will also incur funding costs (i.e. in the form of interest payments), but these can't be considered costs that are related to housing. They are separate. It's like if you buy a car on credit you'll pay more than if you paid for it with your savings, but that doesn't mean the car is more expensive. CPI includes housing services and repairs. As far as I know, it doesn't include houses, probably because they're considered an investment good, while CPI is concerned with consumer goods. At any rate, mortgage payments are not a good estimate of how much houses cost. The reasons are interest, which is a different cost, and the fact that principal payments are arbitrary as they vary depending on things like mortgage length, and so on. Anyway, I understand that many people feel strongly about CPI and inflation measurements, but while cost accounting is not rocket science it's not completely straightforward either, and most of the time criticism of CPI by layman people turns out to be misguided.
    - acover 5y ago
      Thanks for your time. Renting looks like simpler to estimate, but it confuses me as well. > Every month, the rental prices paid by the households in the sample are compared with the rental prices they paid the previous month When rent control caps rent increases this becomes a lagging indicator. Why don't they try to estimate market rent? This feels similar to my problem with the owner cost estimate. Consider a hypothetical about cars - in a world where everyone buys new cars with 8 years of financing, suddenly there is a car shortage (chips or whatever). The price of a new car doubles. As very few owners need to buy a new car every year, on average their costs are about the same as last year despite a 100% increase in the cost of a new car.

by acover 5y ago

gruez 5y ago

>It reads a bit like they are grouping people who’ve own their home for 50 years in with those who just bought - similar to how they calculate rent. >[...] For a new homeowner, mortgage interest is probably 5-10x utilities. Sounds like you're upset that the index is an average of everyone, and therefore doesn't recognize your individual struggles? >A house is not just an investment, it’s a different experience owning versus renting. Eating food grown yourself is a different experience than shopping at the supermarket. Should we factor farm land cost into the CPI?

acover 5y ago
When measuring the price index of natural gas should you average in contracts written 50 years ago but still active, regardless of whether that price is currently available on the market? > Eating food grown yourself is a different experience than shopping at the supermarket. Should we factor farm land cost into the CPI? If 70% of the population paid for a "gardening experience" like they do for gym memberships, etc then yeah I would expect that to be in CPI.

lottin 5y ago

I think, you're missing the point. Houses are consumed over very long periods of time, which means the price at which you're purchasing your home today is going to affect your future cost of living for many, many years. Therefore, if we are trying to measure the current cost of living, current house prices are pretty much irrelevant.

acover 5y ago
How I interpret their methodology is they are trying to estimate the change in costs for existing owners. Is that correct? What I feel is that mortgage payments have doubled in 10 years for new buyers. However, because new buyers are a small fraction of existing buyers this doesn't rapidly affect inflation as they calculate it. Thanks for trying to explain it, I feel pretty dumb as I'm clearly missing something obvious.
- lottin 5y ago
  Conceptually, it's useful to think of a house as an investment good that produces housing services (shelter, living space, etc.). These housing services are what you get when you rent a house. If you're a home owner, you don't pay rent explicitly, but it really is as if you had rented out your house to yourself and you were paying rent to yourself. Therefore the cost of housing services is best estimated through rent prices. The other thing is the cost of the house itself, not the housing services. This includes the purchasing cost and the cost of repairs that you make periodically. The repairs are not a problem but the purchasing cost would need to be spread over the useful life of the house. If the house is bought on credit then the buyer will also incur funding costs (i.e. in the form of interest payments), but these can't be considered costs that are related to housing. They are separate. It's like if you buy a car on credit you'll pay more than if you paid for it with your savings, but that doesn't mean the car is more expensive. CPI includes housing services and repairs. As far as I know, it doesn't include houses, probably because they're considered an investment good, while CPI is concerned with consumer goods. At any rate, mortgage payments are not a good estimate of how much houses cost. The reasons are interest, which is a different cost, and the fact that principal payments are arbitrary as they vary depending on things like mortgage length, and so on. Anyway, I understand that many people feel strongly about CPI and inflation measurements, but while cost accounting is not rocket science it's not completely straightforward either, and most of the time criticism of CPI by layman people turns out to be misguided.
  - acover 5y ago
    Thanks for your time. Renting looks like simpler to estimate, but it confuses me as well. > Every month, the rental prices paid by the households in the sample are compared with the rental prices they paid the previous month When rent control caps rent increases this becomes a lagging indicator. Why don't they try to estimate market rent? This feels similar to my problem with the owner cost estimate. Consider a hypothetical about cars - in a world where everyone buys new cars with 8 years of financing, suddenly there is a car shortage (chips or whatever). The price of a new car doubles. As very few owners need to buy a new car every year, on average their costs are about the same as last year despite a 100% increase in the cost of a new car.