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National market rents are up ~20% https://www.apartmentlist.com/research/national-rent-data https://www.apartmentlist.com/research/national-rent-data Miami is

National market rents are up ~20% https://www.apartmentlist.com/research/national-rent-data https://www.apartmentlist.com/research/national-rent-data Miami is up something absurd like 40% https://theshaderoom.com/major-u-s-cities-experience-drastic-increase-in-rent-prices-miami-metro-area-sees-almost-50-percent-rise/ https://theshaderoom.com/major-u-s-cities-experience-drastic... CPI only shows 5%, due to the lag induced by their rent counting methodology. So inflation as measured by CPI is understated if anything, not overstated. Using the same formula as was used in the 70s would produce double digit numbers.

gruez 5y ago
>CPI only shows 5%, due to the lag induced by their rent counting methodology. So inflation as measured by CPI is understated if anything, not overstated. >Using the same formula as was used in the 70s would produce double digit numbers. Can you elaborate on this? When and what was the methodology changed?
- adam_arthur 5y ago
  On point one, CPI uses a combination of "owners equivalent rents" and more traditional rent measures. Owner's equivalent rent is basically just a survey where they ask homeowners how much they could rent their house for. So survey participants understanding of market rents may lag. But more importantly, when they survey renters, they ask them what they're currently paying. So if somebody is in a one year lease, and gets surveyed in month 11, they will give a rent figure that's almost a year old. On top of this, CPI includes rent controlled units, below market rent units etc. In some sense this is "correct" because it reflects what people are paying... But the whole value of CPI is to be a forecasting tool. Using lagging metrics is bad design imo. Finally, they only survey 1/6 of the housing stock each month. So the whole sample is not updated every month. To your second question, the biggest change is that CPI used to use home prices rather than the OER measure. That metric would show 15-20% rather than the 5% we get from their current formula. Given that the shelter component is the biggest weight in the CPI, it would shift the number up a few points.
  - gruez 5y ago
    >But the whole value of CPI is to be a forecasting tool Forecasting tool for what? Prices? Everything about the CPI is about measuring price changes that already occurred, not to forecast future price rises. If the price of widget goes up 10% year after year, that's all CPI is going to report. It's not going to report what the price of widgets are 10 years from now. If you want inflation forecasts, you look at TIPS spreads or the price of various swaps. Once you understand that, most of the measurement choices make sense. >Owner's equivalent rent is basically just a survey where they ask homeowners how much they could rent their house for. So survey participants understanding of market rents may lag. That's fine because they're essentially insulated from the housing market, so the price they pay is effectively fixed for decades. >But more importantly, when they survey renters, they ask them what they're currently paying. So if somebody is in a one year lease, and gets surveyed in month 11, they will give a rent figure that's almost a year old. >Finally, they only survey 1/6 of the housing stock each month. So the whole sample is not updated every month. Again, also fine because the point of CPI is to measure the cost of living for americans, and the cost of living for americans is largely fixed months in the past (or for homeowners, decades in the past). That said, I do think only updating 1/6 of the housing stock is a bit shady because it basically applies the lagged measure twice.
    - adam_arthur 5y ago
      You ask me about the methodological "issues" then immediately turn around to defend them... Kind of odd. If you really felt so strongly about this, wouldn't you have already been aware? The CPI is the primary tool the Fed uses to set policy, policy whose effect has a multi month lag of its own. So by using backwards looking metrics, we severely impair the ability of the fed to set appropriate policy in a timely manner. If you think the backwards looking metric is still useful, then the Fed should create a new metric based off current market rates, and use that instead. it's intellectually dishonest to defend using backwards looking metrics in the CPI methodology as a forecasting tool for Fed policy. The current methodology clearly masks the actual current market rates for rent. Including rent controlled units tells us nothing of inflation, by definition. So why does the Fed consider these? Example: it took a whole year for inflation to be acknowledged as a problem, and rents have barely shown up in it at this point. There are a few percentage points higher on CPI to come from rent alone (assuming other factors stay constant) Using current market rates is not forecasting anything, it's telling you what rents are today. Using rents from a year ago is backwards looking, pretty obviously. It's a current snapshot of what people are paying, not what price levels are. Which is a fairly useless metric, as the the intent of Fed policy is to influence market pricing, and the biggest use case for the CPI is to provide datapoints to help forecast the path of inflation.

gruez 5y ago

>CPI only shows 5%, due to the lag induced by their rent counting methodology. So inflation as measured by CPI is understated if anything, not overstated. >Using the same formula as was used in the 70s would produce double digit numbers. Can you elaborate on this? When and what was the methodology changed?

adam_arthur 5y ago
On point one, CPI uses a combination of "owners equivalent rents" and more traditional rent measures. Owner's equivalent rent is basically just a survey where they ask homeowners how much they could rent their house for. So survey participants understanding of market rents may lag. But more importantly, when they survey renters, they ask them what they're currently paying. So if somebody is in a one year lease, and gets surveyed in month 11, they will give a rent figure that's almost a year old. On top of this, CPI includes rent controlled units, below market rent units etc. In some sense this is "correct" because it reflects what people are paying... But the whole value of CPI is to be a forecasting tool. Using lagging metrics is bad design imo. Finally, they only survey 1/6 of the housing stock each month. So the whole sample is not updated every month. To your second question, the biggest change is that CPI used to use home prices rather than the OER measure. That metric would show 15-20% rather than the 5% we get from their current formula. Given that the shelter component is the biggest weight in the CPI, it would shift the number up a few points.
- gruez 5y ago
  >But the whole value of CPI is to be a forecasting tool Forecasting tool for what? Prices? Everything about the CPI is about measuring price changes that already occurred, not to forecast future price rises. If the price of widget goes up 10% year after year, that's all CPI is going to report. It's not going to report what the price of widgets are 10 years from now. If you want inflation forecasts, you look at TIPS spreads or the price of various swaps. Once you understand that, most of the measurement choices make sense. >Owner's equivalent rent is basically just a survey where they ask homeowners how much they could rent their house for. So survey participants understanding of market rents may lag. That's fine because they're essentially insulated from the housing market, so the price they pay is effectively fixed for decades. >But more importantly, when they survey renters, they ask them what they're currently paying. So if somebody is in a one year lease, and gets surveyed in month 11, they will give a rent figure that's almost a year old. >Finally, they only survey 1/6 of the housing stock each month. So the whole sample is not updated every month. Again, also fine because the point of CPI is to measure the cost of living for americans, and the cost of living for americans is largely fixed months in the past (or for homeowners, decades in the past). That said, I do think only updating 1/6 of the housing stock is a bit shady because it basically applies the lagged measure twice.
  - adam_arthur 5y ago
    You ask me about the methodological "issues" then immediately turn around to defend them... Kind of odd. If you really felt so strongly about this, wouldn't you have already been aware? The CPI is the primary tool the Fed uses to set policy, policy whose effect has a multi month lag of its own. So by using backwards looking metrics, we severely impair the ability of the fed to set appropriate policy in a timely manner. If you think the backwards looking metric is still useful, then the Fed should create a new metric based off current market rates, and use that instead. it's intellectually dishonest to defend using backwards looking metrics in the CPI methodology as a forecasting tool for Fed policy. The current methodology clearly masks the actual current market rates for rent. Including rent controlled units tells us nothing of inflation, by definition. So why does the Fed consider these? Example: it took a whole year for inflation to be acknowledged as a problem, and rents have barely shown up in it at this point. There are a few percentage points higher on CPI to come from rent alone (assuming other factors stay constant) Using current market rates is not forecasting anything, it's telling you what rents are today. Using rents from a year ago is backwards looking, pretty obviously. It's a current snapshot of what people are paying, not what price levels are. Which is a fairly useless metric, as the the intent of Fed policy is to influence market pricing, and the biggest use case for the CPI is to provide datapoints to help forecast the path of inflation.