6 ms·

America's Rental-Market Mystery

36 points by pg_1234 3y ago

pg_1234 3y ago
https://archive.ph/ttVje https://archive.ph/ttVje
onlyrealcuzzo 3y ago
> In America oer accounts for about a quarter of the consumer-price index, making it the single biggest component. Or ~50% of total spending for most renters. Trying to measure inflation in one way when the biggest expense (by far) is completely different for two large groups is interesting (~67% own vs ~33% rent). If you've owned a house for a while, you should be doing fine. If not, you probably aren't.
- immibis 3y ago
  Do 67% of people own a house? I don't think 67% of people own a house. As I recall, 67% is the percentage of people who live in a house which is owned by somebody who lives in the same house. This includes children, spouses, other dependents, but also boarders. I'm not sure if you could get from that statistic to the percentage of home owners, especially since, presumably, people who own homes are more likely to have other people they support in the same homes.
  - lumost 3y ago
    This also belies the stark age differences between owners and non-owners. Ignoring that it is becoming dramatically more expensive to move from one category to the other does not seem correct. Particularly if the majority of individuals would eventually move to the latter category.
  - smallmancontrov 3y ago
    Dependents sort of inherit the economic wins/losses of the person supporting them, so this feels like a distinction without much of a difference, or at least not nearly enough of a difference to invalidate the high level result that the situation is bimodal.
    - creer 3y ago
      Going back to live with your parents has become a meme - which was not the case a few years ago. Most people who say that don't exactly see it as a plus ("Oh good, I'm sharing in my parents' win!")
      - frank_nitti 3y ago
        They may not see it that way, but IMO that is the reality as they are heirs to the estate in most cases, presumably. Compared to those whose inheritance will not include a considerable estate, it seems like a win.
        red-iron-pine 3y ago
        high medical costs, esp. in old age, will annihilate most of the wealth before the Zoomers get a crack at it. My dad's home ran 9000/month for regular care, and even after we sold her house and other assets, it was looking like she'd be short of cash before too long. After the estate settled me + siblings walked out with around 50k each. Not terrible, but wouldn't do much for me buying a house on the west coast; I'd need triple that, and even then might not cross the 20% threshold for mortgage insurance.
  - dragonwriter 3y ago
    > As I recall, 67% is the percentage of people who live in a house which is owned by somebody who lives in the same house. This includes children, spouses, other dependents, but also boarders. No, its the share of occupied housing units which are owner-occupied, not the share of the population that lives in owner-occupied housing units.
  - mdorazio 3y ago
    Here’s an actual link to the census data. What you want is “owner occupied housing” as another commenter said. That’s % of people who live in the place they own. And it’s 65% as of 2022. https://www.census.gov/quickfacts/fact/table/US/VET605222 https://www.census.gov/quickfacts/fact/table/US/VET605222
  - analog31 3y ago
    I don't know if this is useful, but in Econ 101 we were told that the "household" is the economic unit, not the individual. What you mention was given as the reason. That was 4 decades ago, and I don't know if it was or is the mainstream view.
- carlosjobim 3y ago
  Beyond inflation numbers that may interest economists, the extreme cost of housing worldwide means that people who might seem to have identical lives actually have completely different lives. For example three men working the same job at the same company, having the same salary: Man 1 has his home paid off, he owns it because of an inheritance that came his way. He can have a great quality of life from his salary and earns an extra yearly salary each year from his real estate increasing in value. He doesn't need to sell to reap that money, he can borrow against his increased home value and use a small part of his salary to pay off the loan. Man 2 is paying off a mortgage on his home. His salary is enough to do it and depending on what stage he is at, he starts getting some money to spare. He earns an extra yearly salary each year from his real estate increasing in value. If things become desperate, he can refinance for some extra cash or even sell. Man 3 is loosing most of his salary to rent to pay somebody else's mortgage. He is desperately trying to save money to get into some real estate of his own, but he's getting more broke for each year working. If he can ever get onto the real estate ladder, he will have hefty payments for forty or fifty years. He still needs to get his own real estate, because the yearly salary from owning real estate is higher than the yearly salary from working. To reach the living standard of Man 1, Man 3 would need a salary that is 3-5 times higher than what the three of them are earning. Now how do you set wages as a business owner? You can employ the people who get by fine with a low salary because they own their homes and complain that young people don't want to work. You can hire cheap foreign labour that accept living in dismal conditions to be able to send some quids back home. Are they going to consume your product? If I would predict the future, I expect to see an enormous mobility of labour worldwide. Not only the cheapest labour as has been, but all labour including the highest qualified labour and everything in between. If you don't have real estate, you have no future no matter where you live and no matter how skilled you are at your vocation. And that's true right now, except for in few countries. You have to go somewhere where you can make a future ASAP.
  - itake 3y ago
    At least since the Seattle housing market man, number two is paying way more per month than man number three. There is literally a 4x difference between a man that bought 4 years ago and one that bought 1 year ago.
analyte123 3y ago
I suppose the conclusion, "the biggest picture is that OER inflation is running well above pure rent inflation (see chart)...it may well the deter the Fed from cutting interest rates anytime soon" may be relevant today, but when I see the chart over time, I see that the entire concept of OER inflation is completely out of touch with reality, and that if they were observing observed rent instead they wouldn't have been so far behind the ball on inflation. Not sure if paying attention to observed rent now makes up for ignoring it earlier yet.
chiefalchemist 3y ago
I feel as if they buried the lede. That is, the government has an index to track something and that index is inaccurate for a number of reasons. Nonetheless, other gov "agencies" use that defective index to make decisions, decisions that eventually have significant impact on all (i.e. national, and international for countries that tightly coupled to the USD).
- creer 3y ago
  In this case at least, the Fed et al look at far more numbers than just "headline inflation". - Which does not avoid the greater problem that a lot of such (greater) numbers still tend to necessarily have politically and policy-influenced rationales. There are many ways that inflation could be computed (and for many sub-populations). The numbers should be reflection of "reality on the ground" but if they are (by design) in sync with some group-think, then it does not matter whether the numbers are used to produce the decision or to justify it after the decision is made. The two are at risk of becoming the same.
jaggederest 3y ago
I've thought for a while that owner equivalent rent was a bad concept. I think it's more useful to think about marginal rent, i.e. the cost to house an additional person. If someone dropped into a given location from space today, how much would they have to pay to have a place to live? In some places the best available options without credit history or deposit are marginally attached dwellings like extended stay motels. In the case of rentals, the cost between a 1 bedroom and 2 bedroom apartment is substantial. For owners, there may already be a bedroom or convertible space, but if not, the cost can be in the thousands at minimum to upsize or downsize.
charlie0 3y ago
This is an interesting take. I currently live in an area where my rent is about 35% cheaper than taking out a mortgage at the current interest rates.
- red-iron-pine 3y ago
  statistically most people live in a handful of areas, and COL there is high. more jobs there, though, so it becomes a balance. if I could pull 90k in rural Kentucky I'd live like a king, but that's not easy, and most people aren't that lucky.
  - charlie0 3y ago
    Rent doesn't scale linearly with the prices of homes, rent is likely cheaper than a mortgage in HCOL.
deleted 3y ago
[deleted]
rgbrenner 3y ago
Anyone notice OER didnt capture the rapid increase in housing prices during covid? Am I really to believe that housing increased by 2% in 2020? The ecomomist says OER overstates inflation... but the chart looks like it understates it, at least until recently. Edit: ok after covid: https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/ASPUS https://fred.stlouisfed.org/series/ASPUS
- NovemberWhiskey 3y ago
  Rents cratered in many large markets in 2020-2021, especially major cities.
  - deleted 3y ago
    [deleted]
teeray 3y ago
This is especially interesting as new housing stock is often not even available for purchase. It’s lease-only so the REITs get a portion of your income forever.

36 points by pg_1234 3y ago

https://archive.ph/ttVje https://archive.ph/ttVje

> In America oer accounts for about a quarter of the consumer-price index, making it the single biggest component. Or ~50% of total spending for most renters. Trying to measure inflation in one way when the biggest expense (by far) is completely different for two large groups is interesting (~67% own vs ~33% rent). If you've owned a house for a while, you should be doing fine. If not, you probably aren't.

immibis 3y ago
Do 67% of people own a house? I don't think 67% of people own a house. As I recall, 67% is the percentage of people who live in a house which is owned by somebody who lives in the same house. This includes children, spouses, other dependents, but also boarders. I'm not sure if you could get from that statistic to the percentage of home owners, especially since, presumably, people who own homes are more likely to have other people they support in the same homes.
- lumost 3y ago
  This also belies the stark age differences between owners and non-owners. Ignoring that it is becoming dramatically more expensive to move from one category to the other does not seem correct. Particularly if the majority of individuals would eventually move to the latter category.
- smallmancontrov 3y ago
  Dependents sort of inherit the economic wins/losses of the person supporting them, so this feels like a distinction without much of a difference, or at least not nearly enough of a difference to invalidate the high level result that the situation is bimodal.
  - creer 3y ago
    Going back to live with your parents has become a meme - which was not the case a few years ago. Most people who say that don't exactly see it as a plus ("Oh good, I'm sharing in my parents' win!")
    - frank_nitti 3y ago
      They may not see it that way, but IMO that is the reality as they are heirs to the estate in most cases, presumably. Compared to those whose inheritance will not include a considerable estate, it seems like a win.
      - red-iron-pine 3y ago
        high medical costs, esp. in old age, will annihilate most of the wealth before the Zoomers get a crack at it. My dad's home ran 9000/month for regular care, and even after we sold her house and other assets, it was looking like she'd be short of cash before too long. After the estate settled me + siblings walked out with around 50k each. Not terrible, but wouldn't do much for me buying a house on the west coast; I'd need triple that, and even then might not cross the 20% threshold for mortgage insurance.
- dragonwriter 3y ago
  > As I recall, 67% is the percentage of people who live in a house which is owned by somebody who lives in the same house. This includes children, spouses, other dependents, but also boarders. No, its the share of occupied housing units which are owner-occupied, not the share of the population that lives in owner-occupied housing units.
- mdorazio 3y ago
  Here’s an actual link to the census data. What you want is “owner occupied housing” as another commenter said. That’s % of people who live in the place they own. And it’s 65% as of 2022. https://www.census.gov/quickfacts/fact/table/US/VET605222 https://www.census.gov/quickfacts/fact/table/US/VET605222
- analog31 3y ago
  I don't know if this is useful, but in Econ 101 we were told that the "household" is the economic unit, not the individual. What you mention was given as the reason. That was 4 decades ago, and I don't know if it was or is the mainstream view.
carlosjobim 3y ago
Beyond inflation numbers that may interest economists, the extreme cost of housing worldwide means that people who might seem to have identical lives actually have completely different lives. For example three men working the same job at the same company, having the same salary: Man 1 has his home paid off, he owns it because of an inheritance that came his way. He can have a great quality of life from his salary and earns an extra yearly salary each year from his real estate increasing in value. He doesn't need to sell to reap that money, he can borrow against his increased home value and use a small part of his salary to pay off the loan. Man 2 is paying off a mortgage on his home. His salary is enough to do it and depending on what stage he is at, he starts getting some money to spare. He earns an extra yearly salary each year from his real estate increasing in value. If things become desperate, he can refinance for some extra cash or even sell. Man 3 is loosing most of his salary to rent to pay somebody else's mortgage. He is desperately trying to save money to get into some real estate of his own, but he's getting more broke for each year working. If he can ever get onto the real estate ladder, he will have hefty payments for forty or fifty years. He still needs to get his own real estate, because the yearly salary from owning real estate is higher than the yearly salary from working. To reach the living standard of Man 1, Man 3 would need a salary that is 3-5 times higher than what the three of them are earning. Now how do you set wages as a business owner? You can employ the people who get by fine with a low salary because they own their homes and complain that young people don't want to work. You can hire cheap foreign labour that accept living in dismal conditions to be able to send some quids back home. Are they going to consume your product? If I would predict the future, I expect to see an enormous mobility of labour worldwide. Not only the cheapest labour as has been, but all labour including the highest qualified labour and everything in between. If you don't have real estate, you have no future no matter where you live and no matter how skilled you are at your vocation. And that's true right now, except for in few countries. You have to go somewhere where you can make a future ASAP.
- itake 3y ago
  At least since the Seattle housing market man, number two is paying way more per month than man number three. There is literally a 4x difference between a man that bought 4 years ago and one that bought 1 year ago.

analyte123 3y ago

I suppose the conclusion, "the biggest picture is that OER inflation is running well above pure rent inflation (see chart)...it may well the deter the Fed from cutting interest rates anytime soon" may be relevant today, but when I see the chart over time, I see that the entire concept of OER inflation is completely out of touch with reality, and that if they were observing observed rent instead they wouldn't have been so far behind the ball on inflation. Not sure if paying attention to observed rent now makes up for ignoring it earlier yet.

chiefalchemist 3y ago

I feel as if they buried the lede. That is, the government has an index to track something and that index is inaccurate for a number of reasons. Nonetheless, other gov "agencies" use that defective index to make decisions, decisions that eventually have significant impact on all (i.e. national, and international for countries that tightly coupled to the USD).

creer 3y ago
In this case at least, the Fed et al look at far more numbers than just "headline inflation". - Which does not avoid the greater problem that a lot of such (greater) numbers still tend to necessarily have politically and policy-influenced rationales. There are many ways that inflation could be computed (and for many sub-populations). The numbers should be reflection of "reality on the ground" but if they are (by design) in sync with some group-think, then it does not matter whether the numbers are used to produce the decision or to justify it after the decision is made. The two are at risk of becoming the same.

jaggederest 3y ago

I've thought for a while that owner equivalent rent was a bad concept. I think it's more useful to think about marginal rent, i.e. the cost to house an additional person. If someone dropped into a given location from space today, how much would they have to pay to have a place to live? In some places the best available options without credit history or deposit are marginally attached dwellings like extended stay motels. In the case of rentals, the cost between a 1 bedroom and 2 bedroom apartment is substantial. For owners, there may already be a bedroom or convertible space, but if not, the cost can be in the thousands at minimum to upsize or downsize.

charlie0 3y ago

This is an interesting take. I currently live in an area where my rent is about 35% cheaper than taking out a mortgage at the current interest rates.

red-iron-pine 3y ago
statistically most people live in a handful of areas, and COL there is high. more jobs there, though, so it becomes a balance. if I could pull 90k in rural Kentucky I'd live like a king, but that's not easy, and most people aren't that lucky.
- charlie0 3y ago
  Rent doesn't scale linearly with the prices of homes, rent is likely cheaper than a mortgage in HCOL.

deleted 3y ago

[deleted]

rgbrenner 3y ago

Anyone notice OER didnt capture the rapid increase in housing prices during covid? Am I really to believe that housing increased by 2% in 2020? The ecomomist says OER overstates inflation... but the chart looks like it understates it, at least until recently. Edit: ok after covid: https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/ASPUS https://fred.stlouisfed.org/series/ASPUS

NovemberWhiskey 3y ago
Rents cratered in many large markets in 2020-2021, especially major cities.
- deleted 3y ago
  [deleted]

teeray 3y ago

This is especially interesting as new housing stock is often not even available for purchase. It’s lease-only so the REITs get a portion of your income forever.