[strict9]

This is a great point. But a counterpoint is that housing is not included in consumer price index. Real estate prices have rocketed to outer space for the past year and housing constitutes the biggest monthly expense for most people.

Not predicting disaster, but what's going on is very unusual and no one can predict how or when it will shake out.

[donkeyd]

> Real estate prices have rocketed to outer space for the past year

In the Netherlands it's about 20% YoY. And this is starting to become true all throughout the country even though it started in urban areas. I really feel bad for people who aren't homeowners yet, because becoming one right now is getting damn near impossible.

[01100011]

I don't know how the 'average joe' is tolerating it right now. I rent, but I also work in tech so there's still a chance I'll be able to buy a house one day(not anywhere near my job, but still).

If I were middle class and saving for a home, I think I would be angry to the point of revolution and violence right now. There are people who have worked like crazy their whole lives and they just had their hopes and dreams set on fire by runaway money creation and the resulting inflation.

[strict9]

I think this is a large part of why people are moving further left and right in the past few years.

Social media adds gasoline to the fire, but that fire was already burning, in part due to the middle class getting wiped out.

The ends are expanding and middle is disappearing.

[vkou]

> There are people who have worked like crazy their whole lives and they just had their hopes and dreams set on fire by runaway money creation and the resulting inflation.

Would they be happier under a repeat of 2008 or 1928 instead?

[kipchak]

I would figure from a self interested perspective a repeat of 2008 would be pretty advantageous to an aspiring homeowner. Home prices peaked at $262,600 median in March 2007 and bottomed at $205,100 in March of 2009.[1] Rates were even about a % lower in 2009.[2][3]

Of course if the hypothetical aspiring homeowner with excellent market timing lost their job the point would be moot, but if their income stayed the same and they put 20,000 down their monthly payments would have gone from $1,302 to $994.

[1]http://www.fedprimerate.com/new_home_sales_price_history.htm

[2]https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Reports-...

[3]https://www.marketwatch.com/story/us-mortgage-rates-hit-2007...

[vkou]

Is it pretty advantageous to new retiree who has followed orthodox investment advice, and has started to live off their investments, only to see the value of half of them crash? Even if they recover in six years, they have still lost a mountain of principal in the meantime.

Is it advantageous to a new graduate who will see no work, and maybe a decade of depressed wages (which, between loans and compounding interest in savings, is devastating to their future prospects)?

Is it advantageous to a new homeowner that just lost their job?

Some people got burnt by that flood of money that stabilized the economy. Some people benefited. Some people avoided harm. Focusing on the first group without regard for the latter is missing a large part of the picture - which was that the economy as a whole remained more or less stable through this crisis.

[kipchak]

For sure, some people will benefit from such policies and some people wont. My figuring is that those in the parent comment's category of "middle class and saving for a home" are probably not in the camp of those benefiting from current policies (holding cash). Those policies are, what I can tell, keeping valuations high instead of raising rates, and providing an incentive not to hold cash and instead purchase and invest.

Whether that's fair vs protecting those who already have homes and other assets is I suppose a different question. I agree things have remained fairly stable so far as the result of printing but I suspect we likely haven't felt it's effects yet and the stabilization will continue well into the next year, though the future is always fickle to predict.

[01100011]

Wouldn't a prudent retiree have exited the market and experienced gains in their bond backed portfolio?

Right now we're fueling a tsunami of moral hazard which will eventually bite us in the ass anyway. We're just prolonging the inevitable and making the crash even worse when it finally appears.

[kipchak]

I fall into that category, and am still mildly hopeful there might be one or two more chances to hop on board. My rent increased by close to 20% this year (US, FL) to the point where paying my old rent with a $250 month to month penalty is actually cheaper.

I think this is part of the rampant speculation on crypto and the like - $1,000 isn't really going to do me that much good, but if I hit a 100x I could be a homeowner.

[lotsofpulp]

> My rent increased by close to 20% this year (US, FL) to the point where paying my old rent with a $250 month to month penalty is actually cheaper.

I have never heard of this type of rental agreement. Your contract says you can stay indefinitely if you pay $250 per month extra over the expired contract’s rent?

[kipchak]

The lease automatically converted to a month to month after the one year term ended. This thread seems to cover a similar scenario.[1]

I suppose the downside is they could give me the boot with 30 days notice. FWIW I've contacted them several times to try and just sign a lease but the property has been bought out and had it's management office staff swapped out a few times so the whole thing is a mess.

[1]https://www.city-data.com/forum/renting/1261828-fixed-term-l...

[_delirium]

CPI does include housing, weighted at 32% in the CPI-U [1].

[1] https://www.bls.gov/news.release/pdf/cpi.pdf, Table 1

[adam_arthur]

And the CPI figure is severely lagging public rent data

https://www.apartmentlist.com/research/national-rent-data

OER is a hugely flawed metric that is somewhat designed to suppress true cost increases. E.g. they include rent controlled units in the figure. Small portion, but clearly that's not a useful lens to analyze through.

Many other methodological flaws that can be enumerated

[_delirium]

If I'm reading apartmentlist's methodology correctly, they're tracking average prices for apartments that were vacant and have newly been rented (what they call "transacted rent prices"). But they don't track prices for existing leases to long-term tenants, which are typically much more stable than newly turned over units. Depending on the market, that can significantly overestimate rent increases in the broader market. For example, in NYC, about 50% of renters are in rent-controlled units, but they account for a relatively small percentage of new listings, because the units don't turn over often. So you'd get different answers if you average rent for newly turned over units vs. average rent for all current tenants.

(I'm not in NYC, but also in that category: I've rented my place for years, and my rent has increased 0.0% this year.)

[adam_arthur]

Yes, exactly. Why would you ever want to weight in rent controlled units?

The much more useful number is, what is the cost of living for somebody plopped into the economy. Because eventually almost everybody ends up moving and bearing that cost.

Should our price data be forward looking or backwards looking? Obviously from a policy perspective having forward looking pricing data is much more useful and relevant.

Including rent controlled units and existing leases is a methodological flaw of OER. You're right though, if you game the measurement and design the methodology just right, you can produce lower numbers.

If the CPI formula were unchanged from the 70s, we would have roughly equivalent inflation numbers now that we had then.

[_delirium]

For apartmentlist's purposes it makes sense they do it that way, because their target audience is presumably people who are looking to rent a new unit, and those people care about what newly rented units go for. But if we're looking at changes in cost of living in the broader economy, most people don't move constantly, so it doesn't make any sense to exclude the cost of living of people who are staying in the same unit. You end up massively exaggerating both increases and decreases in cost of living, e.g. apartmentlist showed huge deflation in rents in my city during 2020, even though most people didn't move and most people's actual cost of living didn't decrease. But there were a lot of vacant units listed cheaply as people left for the suburbs during covid. Now the vacant units are back up again as people come back into the city, but my rent still hasn't changed either way, and neither has most people's. So you could tell a story of massive deflation followed by massive inflation, but that is not in fact what most people who actually live in the city experienced. So for an overall cost of living number I'd much prefer just an average of all rents.

[adam_arthur]

So you prefer backward looking to forward looking metrics then. That's not useful from a policy perspective.

The Fed is meant to head off inflationary pressures. If they take a full year to materialize in the data, that's a flawed metric IMO. A 20% market rate rent increase will almost by definition feed into a 20% rent increase for everybody in the longer run.

The market rate rent will dictate rents for all over the longer run. Yes, maybe 10% of the population got a good deal on their renewal or whatever. Including that information is not useful or helpful from a policy perspective.

At the very least, they should produce two figures. Market rate CPI and existing tenant CPI.

[xapata]

CPI doesn't include the stock market, either. Real estate is an asset. Rent is included, however. They estimate how much a home owner is effectively paying in rent.