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"Anyone with a web browser knows that home prices have experienced a monumental increase." An asset cannot experience inflation. The word inflation suggests so

"Anyone with a web browser knows that home prices have experienced a monumental increase." An asset cannot experience inflation. The word inflation suggests something that loses values. A home that gains in value is clearly not suffering inflation, rather, that is the opposite of inflation. If you earn $200k a year, and there is 5% consumer inflation, and a year later you still make $200k, then in a sense you are 5% poorer. If you've a house worth 200k and its value goes up 5%, then a year later you are 5% wealthier. We might joking and informally refer to "asset inflation" but please remember, under any formal model, there is no such thing; it would be a contradiction in terms.

vntok 5y ago
> If you've a house worth 200k and its value goes up 5%, then a year later you are 5% wealthier. Not if everything else you might want and/or need to buy went up by 15%.
- missedthecue 5y ago
  In that case, asset prices didn't 'inflate' anyway, therefore parents point still holds true.
xibalba 5y ago
But housing costs money. If you're a homeowner, if you bought a house for $250k in 2019 vs. a homeowner who bought an identical house for $300k in 2021, its pretty hard to argue the second homeowner isn't comparatively worse off. Of course, houses have to be maintained. At least where I am, the cost of plumbers, electricians, HVAC, etc. have exploded in the last 18 months. Renters are a much more straightforward case. The costs of housing (i.e. the costs of purchasing and maintaining the asset) are passed on to them in the form of rent increases.
- lkrubner 5y ago
  While your concerns are valid, that is simply not the definition of consumer inflation. Houses are not consumer goods, they are assets, like stocks on the stock market. If the stock market goes up 2%, we do not make a habit of saying "Terrible news today, the stock market suffered 2% inflation."
  - notch656a 5y ago
    >we do not make a habit of saying "Terrible news today, the stock market suffered 2% inflation." If the real value of the underlying equities/assets of the market stay the same but the nominal price goes up 2%: As a cash buyer I would absolutely say "terrible news today, the stock market suffered 2% price inflation today." Just because the government doesn't put that into the "consumer inflation" figures doesn't mean it doesn't look like inflation to me as someone who may desire to own certain equities.
    - lkrubner 5y ago
      "If the real value" The word "real" has no meaning in this sentence unless you've first developed a concept of consumer inflation that is separate from asset values increasing. If you say that asset "inflation" should be a component of the consumer inflation that the government measures, and therefore consumer inflation includes the increase in the value of homes, then the word "real" has no meaning. You cannot say "Houses went up 5% but inflation also went up 5%" if the 5% increase in homes is already counted in the 5% inflation. You are mushing these concepts together and creating a conceptual mess.
      - notch656a 5y ago
        >If you say that asset [price] "inflation" should be a component of the consumer inflation First of all I never said that, because by definition they are two separate things. Asset price inflation refers to a fixed quantity of currency buying less and less real assets. Consumer inflation refers to a fixed quantity of currency buying less and less of the basket of consumer goods and services. You keep confusing yourself by sometimes mushing the concepts inflation, asset price inflation, and consumer inflation and then getting upset when one doesn't fit neatly into the other. You are mushing these concepts together and creating a conceptual mess. You can play this disingenuous game all day where you mix the 3 concepts around, and yet at the end of the day asset price inflation will still be real.
        lkrubner 5y ago
notch656a 5y ago
>If you've a house worth 200k and its value goes up 5%, then a year later you are 5% wealthier. That doesn't follow. A nominal rise of 5% doesn't make you 5% wealthier. Asset PRICE inflation is a real thing. You're conflating value appreciation and depreciation (rise or fall in real value) with price inflation/deflation (rise or fall of nominal value).
- lkrubner 5y ago
  Houses are not consumer goods, they are assets, like stocks on the stock market. If the stock market goes up 2%, we do not make a habit of saying "Terrible news today, the stock market suffered 2% inflation." This sentence is unmanageable: "You're conflating appreciation and depreciation (rise or fall in real value) with inflation/deflation (rise or fall of nominal value)." First of all, I'm explaining the government's definition of consumer inflation, which you seem to misunderstand. The government does not formally model rising asset prices as consumer inflation, the government models that increasing wealth. Second of all, you're conflating nominal appreciation and nominal depreciation with the concept of the "real," which is to say, inflation adjusted value. If the value of your house increases by 5% then you are 5% wealthier. Whether this has kept up with the pace of inflation is a separate issue. We need to talk cleanly and cogently about nominal value versus real changes in value. You can do that by adjusting your changing value of wealth by the consumer inflation, but clearly you cannot do that mental adjustment if you're trying to base the calculation off the real value of your assets -- in that case you would be double counting the inflation. To put that differently: Suppose your house increases a nominal 5% and consumer inflation is 6%. You might say "Oh, I'm 1% poorer in real terms." But you can't say that if, as you seem to want, asset values are included in the calculation of consumer inflation. In other words, if the 5% increase is already part of the 6% increase, then you've mushed the concepts together to such an extent that the calculation becomes meaningless.
  - notch656a 5y ago
    >Suppose your house increases a nominal 5% and consumer inflation is 6%. You might say "Oh, I'm 1% poorer in real terms." But you can't say that if, as you seem to want, asset values are included in the calculation of consumer inflation. In other words, if the 5% increase is already part of the 6% increase, then you've mushed the concepts together to such an extent that the calculation becomes meaningless. You've mushed them together, not I. We were talking about asset price inflation, and then you tried to mush it together with consumer inflation.
88913527 5y ago
Are you really 5% richer, if realizing that appreciation means selling the house, and buying a comparable one on the market that has also appreciated 5% in value? Plus, depending on your locality, your property taxes went up due to the new valuation. The only way you're unlocking that value is if you sell the appreciated asset for some good/service that hasn't gone up in value, say, televisions. Otherwise, you're just trading it for other expensive goods and your purchasing power hasn't changed.
- lkrubner 5y ago
  Those are all valid concerns, but unrelated to the conceptual issue of whether an increase in the nominal price of an asset can be coherently understood to be a form of "inflation."
- shagmin 5y ago
  I'd argue even if absolutely all housing went up 5% in value, everyone is still at least a little richer (albeit not effectively 5% richer and mostly on paper still). Most people buy a house with a down payment. A conventional down payment is 20%. If you bought a house for $100,000 (with $20k down) and it's now worth $105,000. You can now sell the house, and put $25k down on another house, which means you can now qualify for a $125,000 house. For simplicity I'm ignoring principal that had been paid down on the first mortgage and transactional costs.
wonderwonder 5y ago
On the whole you are right and no disagreement from me. The measure of inflation uses shelter though so rising home purchase prices generally means that when those same house purchased at a higher price are rented out the price they rent for is likely going to be higher, raising costs for non owners. So yes, you are correct but rising home prices while a good thing for the owners that got in before the prices rose is not a good thing for anyone else. With that said I am a home owner that is happy my house has increased in value but at the same time, it generally means nothing to me as if I wanted to move I would have to buy another house that has increased in value as well. Its only positive return for me is if I take out a loan on the house it allows me a lower LTV and subsequently a lower interest rate on that loan.
- lkrubner 5y ago
  Absolutely true, and I was in no way suggesting that rising prices for homes was good or bad. I've tried to stay neutral on that issue. The point, which is important to this conversation, is that nominal increases in the price of an asset cannot coherently or conceptually be understood as a form of "inflation." The phrase "asset inflation" is one that we can use jokingly and informally, but formally it would not make any sense in any real attempt to judge changes in the standard of living. By contrast, these are all valid questions: Are wages going up faster than the nominal price of homes? Is labor productivity going up faster than the nominal price of homes? Is the share of national income going to labor increasing or decreasing? Is asset wealth increasingly held in liquid or illiquid forms? Is average rent going up faster than average wages?
vincentmarle 5y ago
> If you've a house worth 200k and its value goes up 5%, then a year later you are 5% wealthier. If inflation is also 5%, your profit is 0%.
- lkrubner 5y ago
  Your nominal profit is 5% and your real profit is 0%, good point, but unrelated to the conceptual issue of whether an increase in the nominal price of an asset can be coherently understood to be a form of "inflation."

vntok 5y ago

> If you've a house worth 200k and its value goes up 5%, then a year later you are 5% wealthier. Not if everything else you might want and/or need to buy went up by 15%.

missedthecue 5y ago
In that case, asset prices didn't 'inflate' anyway, therefore parents point still holds true.

xibalba 5y ago

But housing costs money. If you're a homeowner, if you bought a house for $250k in 2019 vs. a homeowner who bought an identical house for $300k in 2021, its pretty hard to argue the second homeowner isn't comparatively worse off. Of course, houses have to be maintained. At least where I am, the cost of plumbers, electricians, HVAC, etc. have exploded in the last 18 months. Renters are a much more straightforward case. The costs of housing (i.e. the costs of purchasing and maintaining the asset) are passed on to them in the form of rent increases.

lkrubner 5y ago
While your concerns are valid, that is simply not the definition of consumer inflation. Houses are not consumer goods, they are assets, like stocks on the stock market. If the stock market goes up 2%, we do not make a habit of saying "Terrible news today, the stock market suffered 2% inflation."
- notch656a 5y ago
  >we do not make a habit of saying "Terrible news today, the stock market suffered 2% inflation." If the real value of the underlying equities/assets of the market stay the same but the nominal price goes up 2%: As a cash buyer I would absolutely say "terrible news today, the stock market suffered 2% price inflation today." Just because the government doesn't put that into the "consumer inflation" figures doesn't mean it doesn't look like inflation to me as someone who may desire to own certain equities.
  - lkrubner 5y ago
    "If the real value" The word "real" has no meaning in this sentence unless you've first developed a concept of consumer inflation that is separate from asset values increasing. If you say that asset "inflation" should be a component of the consumer inflation that the government measures, and therefore consumer inflation includes the increase in the value of homes, then the word "real" has no meaning. You cannot say "Houses went up 5% but inflation also went up 5%" if the 5% increase in homes is already counted in the 5% inflation. You are mushing these concepts together and creating a conceptual mess.
    - notch656a 5y ago
      >If you say that asset [price] "inflation" should be a component of the consumer inflation First of all I never said that, because by definition they are two separate things. Asset price inflation refers to a fixed quantity of currency buying less and less real assets. Consumer inflation refers to a fixed quantity of currency buying less and less of the basket of consumer goods and services. You keep confusing yourself by sometimes mushing the concepts inflation, asset price inflation, and consumer inflation and then getting upset when one doesn't fit neatly into the other. You are mushing these concepts together and creating a conceptual mess. You can play this disingenuous game all day where you mix the 3 concepts around, and yet at the end of the day asset price inflation will still be real.
      - lkrubner 5y ago

notch656a 5y ago

>If you've a house worth 200k and its value goes up 5%, then a year later you are 5% wealthier. That doesn't follow. A nominal rise of 5% doesn't make you 5% wealthier. Asset PRICE inflation is a real thing. You're conflating value appreciation and depreciation (rise or fall in real value) with price inflation/deflation (rise or fall of nominal value).

lkrubner 5y ago
Houses are not consumer goods, they are assets, like stocks on the stock market. If the stock market goes up 2%, we do not make a habit of saying "Terrible news today, the stock market suffered 2% inflation." This sentence is unmanageable: "You're conflating appreciation and depreciation (rise or fall in real value) with inflation/deflation (rise or fall of nominal value)." First of all, I'm explaining the government's definition of consumer inflation, which you seem to misunderstand. The government does not formally model rising asset prices as consumer inflation, the government models that increasing wealth. Second of all, you're conflating nominal appreciation and nominal depreciation with the concept of the "real," which is to say, inflation adjusted value. If the value of your house increases by 5% then you are 5% wealthier. Whether this has kept up with the pace of inflation is a separate issue. We need to talk cleanly and cogently about nominal value versus real changes in value. You can do that by adjusting your changing value of wealth by the consumer inflation, but clearly you cannot do that mental adjustment if you're trying to base the calculation off the real value of your assets -- in that case you would be double counting the inflation. To put that differently: Suppose your house increases a nominal 5% and consumer inflation is 6%. You might say "Oh, I'm 1% poorer in real terms." But you can't say that if, as you seem to want, asset values are included in the calculation of consumer inflation. In other words, if the 5% increase is already part of the 6% increase, then you've mushed the concepts together to such an extent that the calculation becomes meaningless.
- notch656a 5y ago
  >Suppose your house increases a nominal 5% and consumer inflation is 6%. You might say "Oh, I'm 1% poorer in real terms." But you can't say that if, as you seem to want, asset values are included in the calculation of consumer inflation. In other words, if the 5% increase is already part of the 6% increase, then you've mushed the concepts together to such an extent that the calculation becomes meaningless. You've mushed them together, not I. We were talking about asset price inflation, and then you tried to mush it together with consumer inflation.

88913527 5y ago

Are you really 5% richer, if realizing that appreciation means selling the house, and buying a comparable one on the market that has also appreciated 5% in value? Plus, depending on your locality, your property taxes went up due to the new valuation. The only way you're unlocking that value is if you sell the appreciated asset for some good/service that hasn't gone up in value, say, televisions. Otherwise, you're just trading it for other expensive goods and your purchasing power hasn't changed.

lkrubner 5y ago
Those are all valid concerns, but unrelated to the conceptual issue of whether an increase in the nominal price of an asset can be coherently understood to be a form of "inflation."
shagmin 5y ago
I'd argue even if absolutely all housing went up 5% in value, everyone is still at least a little richer (albeit not effectively 5% richer and mostly on paper still). Most people buy a house with a down payment. A conventional down payment is 20%. If you bought a house for $100,000 (with $20k down) and it's now worth $105,000. You can now sell the house, and put $25k down on another house, which means you can now qualify for a $125,000 house. For simplicity I'm ignoring principal that had been paid down on the first mortgage and transactional costs.

wonderwonder 5y ago

On the whole you are right and no disagreement from me. The measure of inflation uses shelter though so rising home purchase prices generally means that when those same house purchased at a higher price are rented out the price they rent for is likely going to be higher, raising costs for non owners. So yes, you are correct but rising home prices while a good thing for the owners that got in before the prices rose is not a good thing for anyone else. With that said I am a home owner that is happy my house has increased in value but at the same time, it generally means nothing to me as if I wanted to move I would have to buy another house that has increased in value as well. Its only positive return for me is if I take out a loan on the house it allows me a lower LTV and subsequently a lower interest rate on that loan.

lkrubner 5y ago
Absolutely true, and I was in no way suggesting that rising prices for homes was good or bad. I've tried to stay neutral on that issue. The point, which is important to this conversation, is that nominal increases in the price of an asset cannot coherently or conceptually be understood as a form of "inflation." The phrase "asset inflation" is one that we can use jokingly and informally, but formally it would not make any sense in any real attempt to judge changes in the standard of living. By contrast, these are all valid questions: Are wages going up faster than the nominal price of homes? Is labor productivity going up faster than the nominal price of homes? Is the share of national income going to labor increasing or decreasing? Is asset wealth increasingly held in liquid or illiquid forms? Is average rent going up faster than average wages?

vincentmarle 5y ago

> If you've a house worth 200k and its value goes up 5%, then a year later you are 5% wealthier. If inflation is also 5%, your profit is 0%.

lkrubner 5y ago
Your nominal profit is 5% and your real profit is 0%, good point, but unrelated to the conceptual issue of whether an increase in the nominal price of an asset can be coherently understood to be a form of "inflation."