Saturday, February 26, 2005

Housing and Inflation

Economist: Housing costs comprise 30% of the core inflation indicator (CPI) used by the Fed. Because the recent run-up in home prices is not reflected in increased rental costs, you get very different results for the core CPI if you use home prices (cost to purchase a home) instead of rental cost in the calculation. You could argue this means that US inflation is much higher than previously thought. I prefer to see it as yet another indication of a housing asset bubble.

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3 comments:

Anonymous said...

Steve Steve :)

Well, you win. We do have an inflation problem. Are you ever clever.

Anne

8:52 PM
Anonymous said...

We know there is a lack of connection between rents and real estate prices, we know how much housing costs contribute to the consumer price index. So change the we we calculate the index by using not rentals but housing cost, and there is inflation. Lots of inflation.

Anne

9:07 PM
Carson C. Chow said...

I was talking to someone recently who was thinking of quitting their stable and pretty well paid job to go into real estate. This person was quite certain the market was only going to go higher. Hmm, sounds a lot like the late 90's to me. I think we're sitting on a huge real estate bubble.

12:50 PM

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