Why the government took home prices out of its main inflation index
fullstackeconomics.com
fullstackeconomics.com
nb that there is little relation to interest rates, which have been steadily declining since 82:
https://www.freddiemac.com/pmms
with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x
home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this doesn't show up proportionally in inflation numbers is either malicious, stupid or both
the really psychotic aspect of this all is that in the long run it will destroy the economy as family formation craters (too expensive to start a family)
maybe that's the idea, I can't make much sense of it
The article actually mentions that on an inflation adjusted basis the monthly mortgage was the same now as in the early 80s (due to interest rate differences).
It’s basically not true that housing costs are categorically different than any other time.
But most people don't search for the most value-effective house, they ask how much house can they buy and then buy that.
If you're willing to step outside the east-coast corridors and/or break from suburban to "commuting rural" or further, it is quite possible to get a 10 year mortgage on a house on the median income.
> it is quite possible to get a 10 year mortgage on a house on the median income.
If you don’t mind living in a meth infested trailer park maybe. I assume of course you’re talking about regional median income, not the national.
If you want to live someplace with a decent school district and a good community for raising a family on a single income like the silents and boomers could in major cities then rural America today is no magic bullet.
I have no problem with rural living but suggesting hey why not go homestead in BFE Alabama or something isn’t a refutation for housing policy destroying the middle class, which has largely been urban and suburban.
Are you a realtor?
The only case where you benefit from rising hoise prices is if all of your income comes from owning property, rather than working a job - i.e. you are a major landowner.
If you are doing anything economically productive, from running a business to working a job, houae prices are a blood-sucking vampire squid.
Also, older people think more about downsizing than about upsizing their homes.
Better to rule than be ruled. At the very least it gives you a bigger safety net when you fall out of power.
A true acracy, i.e. a classless society, is never even considered.
Why not simply increase the supply?
Increasing the supply means building new buildings, and that often means building huge lots of five-over-ones, priced as luxury apartments in a growing market. The people building the new supply expect to make a profit, and in a market with growing prices, they aren't selling for less than what they think they can get out of it.
We see this in big cities where vacancies are at an all-time high (aka a lot more supply), but prices aren't going down.
You are putting forward that landlords acted collectively to increase the price of realestate. This is obviously wrong. The price of homes is determined by the market. It doesn’t matter who owns those homes, they are worth what the market says they are. Landlords do not control the market and even if they banded together in a conspiracy to increase the price of homes, they couldn’t because the vast majority of homes are owned by regular people.
The high price of housing is caused by a shortage. If you don’t believe me then watch the 60 minutes segment about it. There’s no conspiracy. If there weren’t landlords building new stock it would be even worse. It’s so ironic that the hive mind spits in the face of the only people building new housing; the only people making the problem better.
Landlords and homeowners and the finance industry don't control the market... they just form a political bloc that controls zoning and taxes and transportation infrastructure and central finance, and these knobs in turn control the market. For some reason, they always vote for policies that pump their holdings. Can't imagine why. These policies do create problems, though, and it's not only reasonable to attribute the problems back to the people who voted for them, it's unreasonable to do anything else.
"It's just the market!" is on par with "Look, a squirrel!" in terms of critical thinking.
The landlords don't need to conspire - they know what's good for them and the politicians either own property themselves or are connected enough to landlords to help them out.
None of these parties have an immediate interest in the lower class affording housing or maintaining the community fabric in the long term - especially the faceless incorporated ones.
There's no super strong market force to push the price of a house down, while there is a large market force to keep it valued where it is or make it go higher.
It's also difficult to tease out the effect of general price inflation. If house prices stay stagnant but currency is devauled, prices are decreasing in real terms.
Where?
Rents go down when landlords go bankrupt.
That's what happened in 2009-2010. It took about 4 years after peak homebuilding, and 2.5 years after peak home prices, and about 12-18 months after the financial crisis started. Real estate tends to lag financial markets by about that time period. But it does happen - eventually markets respond to supply and demand, and firms that try to buck the trend get swept out of the market.
Owners make money leaving properties vacant all the time. In fact, in many markets capital gains have been much more significant than rental income for a long time now.
There are people who own vacant houses that they have zero interest in renting, and are not looking to sell. This could be a vacation home for a billionaire that they seldom get around to visiting, but want to have ready for them, and just have staff check in periodically. Renting it when not in use may be uninteresting (have to lock up their belongings, arrange some form of management company, have insurance concerns (if somebody realizes they are renting from a billionaire, they might get "hurt", hoping for a big quick payday) etc.)
Similarly there are vacant houses own by speculators that have zero interest in renting out the unit, and are not currently looking to sell, since the market isn't right yet.
This is among many other scenarios where vacant does not mean available to rent or purchase (well at least not at anything close to market rates. Some of these people may reconsider if offered way above market rates, but that generally only happens if a property is uniquely valuable to just that one buyer.)
If you want to actually solve the housing crisis, you just have to build more housing. It really is that simple.
It's because some people here own real estate and don't want to see YIMBY policies that would cause their rental income to fall
Some people would increase density until we're all living in Blade Runner hoping it would make rents drop.
https://www.outsideonline.com/culture/essays-culture/how-to-...
Think of houses sold to outsiders as a form of export. It's the best form of export: the good you are selling does not leave the premises, and the local community continues to collect taxes on that. The outsider does not consume government services as much as a local, so, what's not to like? Even better, when those outsiders visit, they spend much more on local businesses, because they are tourists.
The more houses that are empty most of the year, the better for the local community. Because that's tax money that gets collected at very little cost for the local government.
The problem, of course, is the artificial barriers to build more. People have this idea that the land is fully built up, there no way to build more.
That is so far from true. I live in one of the most densely populated neighborhoods on Earth (17k people per km2). Recently a 67-story tower was built across the street from my building. The neighborhood does not feel any more or less crowded than before. If they want to build some more, they can build more. There is (almost) no lot that's not built up, but you can take down a 12-story building and erect a 50-story one.
So, here's my thesis: let builders build as many residential units as they can (provided they are safe, or course). This way the house prices will come down to earth. People will be able to move from the rural areas to the big metropolitan areas, where the jobs are. They can't move right now because the housing costs are just so damn high.
Such a migration would result in both increased GDP growth, and lower impact on the environment. Much lower. I used to live in a very dense city before (3600/km2) before I moved to my current incredibly dense neighborhood. My energy footprint went down maybe by a factor of 10. Easily. Grocery is across the street. Before it was a 15 min drive.
Can you believe that? More affordable housing, higher GDP growth, lower environmental impact? There's no closer thing to a free lunch in our modern society.
The trend toward homes being investment and stores of value for the wealthy is contrary to the goals of building healthy communities that are not filled with ghost homes.
The price of a house should go down in time, just like the price of a car goes down in time. Or the price of any other good.
In principle the supply side has natural constraints, but they are easily 2 times above what has been built until now.
You can think of it this way: the population density of Manhattan is about 27000/km2. The entire NYC has a density of about 10000/km2, while Jersey city has 7000/km2.
However, artificial demand must be dealt with as well, or we overbuild resulting in a bunch of empty homes. Another disadvantage to only dealing with the supply side is the prices of building materials will be unnecessarily high due to additional artificial demand from investors building homes as stores of value.
Finally, supply side only solution creates a potential nonlinear event where investors dump once the homes start to depreciate. A seesawing which the Fed has bolstered with artificially low rates across many asset classes. Not necessarily a bad thing altogether for the housing asset class, but it seems inefficient from a resource standpoint.
(of course there's risk etc)
It's the same as saying you don't NEED to go to college. No, you don't. You don't need much of anything... But if you did go to college - whether through correlation or causation - statistically you are much better off.
So if college and housing get out of reach for most people - then maybe they will be worse off.
Who knows? Maybe it is all correlation and no causation.
it's not the purchase of the home that made you better off financially, but the ability to purchase a home.
If you had that ability, investing in another asset at the same leverage level (such as shares) would net you even more financial income (obviously, its higher risk).
For instance, after paying off a mortgage entirely, my housing costs will be effectively repairs, property tax and utilities. That's a tiny fraction of rent. Meanwhile over 25 years property prices have more than tripled so it's likely the renter's rent would have gone from $1500/month to $4500/month or so. If you have $7000/month for both cost of living and savings then putting $5500/month into whatever assets you choose now that your home is paid off is going to generate much better returns than putting $2500/month into whatever asset you choose after paying off your inflated rent.
Alternatively, you can buy the home purely as an investment rather than a place to live. In this case, you have rental costs either way but you don't just make the capital gains on the home you also make rental income from renting it out. Typically rental income can be around 6% of property value. If you add that to the 7.5% returns to property YoY since 2001 you get 13.5% returns. You will have some expenses to deduct from that so your net returns might end up around 11%. That's still demolishing the stock market returns.
no, if you paid off the mortgage, then the cost of your "rent" is just the cost of the capital sitting in the house (plus those maintenance costs you mentioned).
There's no such thing as free living. it is possible that rent is more expensive - but over time, this ought to normalize, as expensive rent will incentivize build-to-rent and arbitrage the difference to make a profit.
At most the portion of the rent I get from my capital is the difference between deploying the capital in the market and the return to housing. Since housing has historically beat the market that suggests a zero or negative rent for investing in housing.
this is not true unless you only start counting from the past 10-20 years, and only include regions that _did_ beat the market, rather than globally.
This sounds like Reddit "live in your Mom's basement to save on rent" type financial advice. It doesn't work if you have to use that money to pay rent. Rents tend to be about the same or more than a mortgage. If you happen to live in an area where rents are considerably lower than a mortgage than this is an outside possibility, but this also depends on your rents not skyrocketing over the course of 30 years. One of the great things about 30 year fixed loans is that they allow you to ride out market insanity.
This is the dirty little secret of these housing bubbles. It's mostly the poor who get seriously burned, because people with money have mortgages. They don't have to find a way to pay a rent that increased 40% this year. In fact many of the people are the landlords who are enjoying a massive windfall thanks to the housing crisis. They have an incentive to make sure it continues.
[citation needed]
Per the The Credit Suisse Global Investment Returns Yearbook 2018, the global return for real estate from 1900 to 2017 was 1.3%, while stocks returns 5.2%:
* https://www.credit-suisse.com/media/assets/corporate/docs/ab...
Rent is often cheaper than mortgage payments, and is very more often cheaper than mortgage payments plus the cost of maintaining a home. If you take the difference and investment you can have just as must equity in a few decades. Preet Banerjee goes over the math in this ten minute video:
* https://www.youtube.com/watch?v=KAMeI4uHAFE
He rents:
* https://www.speakers.ca/2013/10/preet-banerjee-sold-his-hous...
If you want to know when it makes financial sense, the "5% Rule" by Ben Felix is a decent place to start:
* https://www.youtube.com/watch?v=q9Golcxjpi8
* https://www.youtube.com/watch?v=Uwl3-jBNEd4
Until recently he was a renter, but purchased a house 1-2 years ago. Not exactly happy with the decision though:
You also have to factor in that it's a hedge against inflation on rent, and that part of your rent payment is going to principal, and that your mortgage interest is tax deductible.
If you think the average return for the S&P 500 unleveraged beats owning a PRIMARY RESIDENCE on 5:1 leverage, when your marginal tax rate is 45%, and interest rates are 2.7% on a 30-year fixed... I guess time will tell, but it is INCREDIBLY unlikely.
Leveraging in stocks:
Owning a home isn't just an investment, it's QoL.
Renting is shit, and raising kids in rented space is shit too. If someone moderately cares about their QoL and isn't enamoured with the idea of popping kids not having their own place won't help with deciding to make kids.
But so what? Nothing in your comment is relevant to inflation calculations.
What wisdom does this argument lead us to - basic hygene and human right are superfluous?
The argument put forward previously was 'people were starting families without X, therefore people not having X isn't a problem', where X was a house.
I was trying to demonstrate that no matter what you substitute for X, even something extreme like basic human rights, people were still starting families, therefore either we should not be concerned about anything, or the argument is flawed.
Also many people were rendered homeless or pushed into poverty by the current housing crisis, and I am sure those folks find the argument proposed above offensive and inflammatory.
Starting a family doesn't require owning a home. Vast numbers of people start families without ever owning a home.
Of course, plenty of people start families without solid economic footing. But it's a bit harder to invent space out of thin air than it is to take on debt.
Houses are something like more than double the size they were just 40 years ago, and families are smaller.
It does depend on what families are willing to put up with, though. I'm not sure many of my millenial peers want to raise 7 kids in a 1500 square foot house. It's important not to ask what's physically possible, but instead what's probable given societal expectations.
All those people for whom home ownership is just about in reach will delay starting a family. Those living in unsecure shared accomodation won't even consider it. It's pretty clear that fertility rates have fallen significantly in all western countries over the past decade.
it should be alleviated by making rental accommodation more stable - such as a longer term contract. What if you had a 30 year contract rental (with built-in, but known ahead of time increases).
Seems a high risk, desperate maneuver. What's the end-game for the landlord? A building full of drug dealers, in perpetuity? Keeping maintenance up to city code could be a burden, and the insurance company might start to get wise.
Sometimes it’s just to have tenant churn to allow them to get higher rents. Rent control for long periods of time can cause very large disparities between current market rents and what a tenant is paying (thousands/mo). The dangerous folks aren’t usually obvious when first checking out a unit.
At least in NYC, there is a lot of reputed Mafia involvement in real estate.
so as long as you pay your rent and don't do anything illegal or damaging, you can't be evicted. the worst that can happen is a rise of the rent, but even that is often limited to not go beyond the average market rate for the area.
No they're not illegal. In Austria you see time limited rental contracts all the time, usually 3 years. It's rare to find unlimited rental nowadays as landlords want to make money.
germany doesn't allow time limited contracts. there are only two exceptions. a time limited contract is allowed if the landlord can claim to need to use the property themselves after the end of the contract (which they can only do if they don't have multiple properties to rent), or if they have plans to tear down or renovate the building.
It's nearly impossible as everyone is locked into their rental units and will never move.
You basically have to wait for someone to die.
In Germany, the scarcity is so high that realtors can afford to ghost you left and right despite you having money and then when you finally get to view an apartment there's like 80+ people viewing it and only the one with the best portfolio (full of your private info that they normally shouldn't be allowed to have) gets it. This madness is nowhere near what it's like in the US.
OTOH, that apartment complex was designed and built ~1965 or so, when having kids was far more the American social norm. And their business model seemed carefully tuned to attracting longer-term renters.
The amusing part of it is that small children are the most amenable to moving, it's not until they're a bit older and getting into school that moving becomes a real problem for them.
Fertility rates are low enough that it can't be entirely ascribed to housing.
Children are expensive. If you can't currently afford to buy a house and decide to have a child, the chances of you gaining enough wealth to afford one in the 4 to 6 years before your child reaches school age is practically nonexistent.
This means having a child while renting basically pushes your home ownership plans back by probably about a decade.
I never would have had kids if I waited that long.
I get that it’s perverse how we place so much of the cost of raising children in parents. At the same time, waiting until you’re “already established” is too much.
You may have had great reasons for doing this. But if this becomes a widely accepted expectation we are going to relying heavily on immigration.
Owning a home presents a long-term hedge against financial instability. Due to zoning and other factors, it's often not possible to live in areas which are "good" for children without owning a home. My particular neighborhood in a major city has low cost/quality rentals for college aged folks, reasonable subsidized housing options, and condos. If one were to rent without subsidy for a family, they would likely be pushed into a luxury unit and pay an unreasonable and highly inflationary sum.
The VAST majority of non-single parent families in the US still alive today owned a home.
Maybe current trends are different since home ownership rates are low in young people. But family formation rates are also lower than normal.
While at any given time homeowners may be more likely than their age-peer contemporaries to start families, aggregate homeownership rates don't show any sign of being a positive contributor to family formation.
Fortunately it looks like a 10% correction is all we need, and, fingers crossed, it looks to be coming.
Sure, some people do that, but there are race and economic class biases to it, and both the races and economic classes biased to it are shrinking as a share of the population.
Isn't the definition of a bubble that it has the capability to pop and then eventually pops? At least for urban housing, I see no way of that even being remotely possible, neither for the US nor here in Europe. Rural areas simply are too far left behind to support decent human life - no high speed Internet, no public transport, no necessary infrastructure like doctors/pharmacies/grocery stores, no employment opportunities, schools closing down everywhere and that's just the short list of issues.
As a consequence, the rural flight can and will only accelerate - I see no way ever for politicians to approve the absurd amount of expenses for bringing rural areas back to speed, not with the aftermath of covid and the current Russian invasion having strained anyone's budgets to the limit.
I also have issues doing my job if I can’t stream audio/video due to speed issues- and this happens even with a hardwired connection on occasion.
Yes? My internet from Comcast is pretty good but it's not flawless. Power is even better but can go out. And I have very marginal cell reception without WiFi assist. That's 40 miles outside of major Northeast city. I'm frequently on calls where someone or other has network issues and can't present or need to drop. Life goes on. If my Internet goes out for an hour or two I find something to do that doesn't require Internet.
I'm semi-rural and I still get 2-4 times a year where my cable drops out, which I suspect is due to moisture in the lines as it seems to usually happen during spring thaws.
They're bringing in fiber at some point soon.
>I also have issues doing my job if I can’t stream audio/video due to speed issues- and this happens even with a hardwired connection on occasion.
What on Earth are you streaming that causes issues on a hardwired connection? I never have had speed issues with meetings, on Starlink or broadband at previous residences. I do have occasional latency spikes, but those seem to be getting better.
It's a description of a linear trend over a period that rises and falls. Why the trend falls (or how sharply) is not related. A housing "hump" isn't the preferred metaphor, although it's more apt. People like to think that a trend bubble has to "pop" because they imagine a physical bubble instead of a hump in a line.
I recently moved out of a major city to a small, walkable town so I can get away from the crime, traffic, noise, dirtiness, and car-domination of US cities. It's pretty remarkable to see people and children walk around my neighborhood now -- didn't have that in my major US city before!
Your list of infrastructure issues with rural areas also applies to many major US cities. Let's see:
- no high speed Internet: I have faster internet in a small town than I ever had in any of the major US cities I've lived in. Some cities have fiber in nice neighborhoods, but it's by no means a strong rural/urban divide as you imply here.
- no public transport: Public transit is complete crap in most US cities, with many stuck in a post-covid death spiral thanks to fewer commuters, cut service lines, and rising or perceived-rising crime. There were enough clearly mentally ill people on public transit in my last city that I stopped riding public transit entirely. Where I live now, I can get around entirely on foot or by bike, no need for public transit at all.
- no necessary infrastructure like doctors/pharmacies/grocery stores: I can now walk to the grocery store. I could not in my last city.
- no employment opportunities: Definitely an issue for some fields, but remote work gives more flexibility on this. If anything this is an argument that's weakened over the last 2-3 years.
- schools closing down everywhere: You can only make kids ride so far on the bus in rural America. I know consolidations are an issue in many rural areas, but if you live in a small town, you'll likely be near the only school that remains open. If you live way out in the woods of course you won't have a super close-by school.
On the other hand, rural areas are the only places where many of my non-tech peers ever have a hope of owning a home these days. I suspect their values will perform better over time than million dollar townhomes in rotting city centers with poor internet quality, no walkability, crappy public transit, and lots of quality-of-life issues.
That’s sort of the point. I’d kill myself before I’d live in a small town again instead of San Francisco. I can walk to 10 grocery stores, 20 restaurants, literally find all the food I want, and the public transit is pretty good. Who wants to raise kids in rural areas where there won’t be any opportunities for them?
I'm not interested in raising kids, but if I was, it wouldn't be in SF, Seattle, Austin, Denver, or NYC. I'd raise kids someplace where I could let them walk around and explore in a safe way -- the situation on the street in many US cities is not that. They'd be accosted by the mentally ill or run down by giant trucks and SUVs in no time.
If the answer to any of these questions is no, then you have your answer to why property prices near the cities aren't ever going to match the level of rural properties.
I grew up in a crappy rural area with next to no opportunity, and went to college in a crappy rust belt city with very little opportunity. Moved to NYC the day after graduation to start my career. As far as I can tell, if my life was playing out today, I'd probably pick up a remote gig and move someplace cheaper than NYC where I already know some people -- I simply wouldn't bother with the expensive giant cities because they've never been a good fit for my hobbies and interests. A lack of opportunities definitely shaped my high school experience, but where I live now has a lot more going on than where I grew up, even if they're similar densities. Not all small towns are the same!
And depending on what your kids are interested in, SF, NYC, etc. might lack opportunities for your kids, too -- it's not like they can explore nature, or mountain biking, or sailing, or a million other things easily in your average US city. I guess I'm just trying to say that there are tradeoffs no matter where you live, and we probably shouldn't generalize about "rural" and "urban". There's crappy unwalkable non-kid-friendly rural towns aplenty in the US. But there's also crappy unwalkable non-kid-friendly cities aplenty. The right corner of SF, or the right lively small town can both be good places to raise kids.
San Francisco has some the best access to nature, sailing and mountain biking anywhere in the country. I can drive for 15 minutes and be on the beach, in the mountain. And it's never too cold or too hot.
> I grew up in a crappy rural area with next to no opportunity, and went to college in a crappy rust belt city with very little opportunity
Don't assume the fact that you made it means that your kid would repeat that feat though.
If people looked at this honestly, they would have to admit that relocating from a city into a rural area for the explicit purpose of raising kids is effectively taking a gamble on what thing might look like in the future.
Where I grew up - small town of 4000 with no major city within 3+ hours drive. Nearest “city” was 100k people about 100 miles away.
Even in that - I didn’t feel it was super rural but compared to most people - that is seen as remote. May as well live in the Alaskan wilderness in their eyes.
Some people consider a suburb outside of Indianapolis as “rural”.
>If the answer to any of these questions is no, then you have your answer to why property prices near the cities aren't ever going to match the level of rural properties.
If the opportunities are mostly in the city, don't expect the cost of city dwellings to approach the cost of rural dwellings.
For example, I live about 50 miles west of Boston. There's lot of forest and field around me with an apple orchard and a Christmas tree farm next door. It's a small town and I think is technically classified as "exurban." No, I can't walk except to the forest paths but there's no shortage of shops, hospitals, etc. within a fairly short drive--and I can certainly drive into the city for events if I want to.
I work remotely but my local office is actually nearer my house than it is to Boston and that's true of a lot of tech-adjacent companies in Massachusetts which weren't historically in the city.
I grew up in a rural community and the path is quite simple. Grow up there, leave for university, go where the jobs are or go back and work remotely.
Cities will always be more expensive, but that is to be expected.
If people stop believing housing is a good investment then prices will fall.
People need something to live in though, and as long as the demand for places to live is higher than the supply, rents and purchase prices will keep going up.
The government has completely failed its job of monetary policy, which in broad strokes is to provide back pressure on capitalism's natural tendency to have money move upward. Today there is way too much money at the top and it has nowhere to go. The economy is less and less resembling a healthy marketplace and more medieval feudalism, with lords stuck in their opulent castles while the peasants farm dirt. The more evenly money is spread across the entire spectrum of society the better the markets work. This is one of the side effects of highly progressive taxation and strong social programs--a healthy economy.
Instead our politicians have been focused on reducing taxes for the ultra rich and this has only accelerated the consolidation of money at the top, which is why our economy is getting heavily distorted and why for people on the bottom they have only been getting poorer. Once you factor in rent/mortgage, health care, and inflation versus wage growth the average American is backsliding and has been doing so for many years now. This is a massive failure of fiscal policy, but nobody in Washington cares because the lobbyists and special interests are happy.
Children are expensive AF - childbirth alone is a risk of dozens of thousands of dollars, you need more living space, clothing, diapers, food, more doctor visits, the person bearing the baby may not be able to work for a time which means less income, you need babysitters, ...
That said, in The Netherlands, these places have also increased in prices. GP is underestimating correlation between rural and urban. If prices explode in the urban area, rural will generally see some increase too.
All you're really missing then is the connection to the nearest urban center - if it takes an hour to drive into town it's not much different than taking an hour to drive across town, after all.
Rural for others is 40 acre plots. For some it's 400-1000.
Having your houses this far apart will result in extremely high infrastructure costs.
There's also a lot between a city center and true rural wilds of Wyoming (especially the way the US Census defines it). There's a lot of pretty affordable housing and land within an hour or two of most major cities with decent infrastructure, hospitals, etc. No there's not much public transportation but that's true of anywhere that people are spread out.
Number of births have been dropping since 2008ish, from this graph by the CDC.
Year 2022 - year 2008 = 14
Does that means starting this year, high school enrollment will be dropping year over year? In 4 years time, college enrollment will be dropping year over year. In 8 years time, labor enrollment will be dropping year over year.
As for housing, there was a baby bump around 2008, that helps explain the housing boom for the last number of years. New parents scramble for housing in 2008, then a larger home (after the child hits 6 years old?) around 2014 . But as those kids are now starting high school, and families have settled in for the next 4 years, does this imply a housing slump?
Many older folks are retiring in fields where they might have worked part time for extra money or for that thing that they don't think is worth it anymore following COVID. I've heard it called the "silver tsunami." The "boomers" are all retiring with only those without retirement savings or without generous relatives to fall back working for health insurance or for a little money to pay for food.
The number of flight incidents with rude, disruptive, or violent flyers has reached records levels. Working a grocery store over the past few years supposedly part time but always overtime lately, I have noticed more entitled, rude, desperate, and stressed out customers more generally. It's not just about masks either. I was threatened two years ago because we didn't have soy baby formula in stock for example, as if there were some being hidden in back stock.
In accounting where I work now, we had the senior associates and middle management all quit in a short timespan for other firms. 3/4 of CPAs are eligible for retirement. Your fortune 500 company audits are now being handled by people collectively with way less experience than they used to. Standard operating procedure seems to SALY ("Same As Last Year") in audit the past couple of years or blame discrepancies on COVID. So much fraud has likely happened that will probably never come to light.
Nurses and doctors are all facing mental health crises. Violence against medical professionals is rising at rapid rates even prior to the pandemic. Many health professionals don't report assaults either because of their altruistic tendencies. More than half of nurses are thinking or planning on quitting their jobs. More than half of all doctors wouldn't recommend or don't want their children to go into medicine. Here's a fun little excercise for you. Google the nearest hospital near you and see how many openings they have. Especially for security. The hospital near me has never had a security officer. Now they have five. Hospital workers are being taught de-escalation techniques and taking self defense classes. Senior homes are facing record shortages of labor.
I suppose this is a very brief and calm overview of what's going on. I hope that programmers appreciate how much pay and how little stress you receive in comparison to many other industries. Expect to take care of more relatives, pay more to eat out, and healthcare shortages near you soon. Filipino nurses and teachers are being trained and brought in to fill positions filled briefly by the national guard. Our country is in crisis, and most of us just don't know it yet. I'm not even getting into the healthcare issues in Britain, Canada, and Australia as well.
It's important to recognize why this is happening. The world did a good job at disenfranchising young adults (gen Z + tail-end millennial), and now countries are reaping the rewards from it. The solution is in front of their noses and they are not willing to take it. I'd turn it around and say all those countries are reaping what they sowed.
Give these people a relatively stress-free way to live life the way it benefits society, while having it benefit themselves, and these problems would stop very soon. Them importing skilled workers and refusing students without money alludes to this. If you're that desperate for workers, you don't lock down any and all ways for people without the skills to start picking them up and getting rewarded for it.
I just don't buy the idea of leaders failing the very basics of leadership, 'give people an incentive to do the things you want them to do'. Call it a conspiracy if you want, but it sounds like leaders want to have their cake and eat it too.
https://www.aacnnursing.org/News-Information/Press-Releases/...
https://www.forbes.com/sites/jackkelly/2022/04/19/new-survey...
https://www.ajc.com/pulse/survey-shows-90-of-nurses-consider...
https://www.benefitnews.com/news/nurses-are-planning-to-quit...
There was a worry after WW2 that a large number of young, single men, trained in combat and now returning home, would destabilize American politics, especially if they could not be absorbed by the labor market.
One response was the GI bill, so that some could go back to school. That would help to slow their return to the job market, and hopefully prevent unemployment.
Another was the 30-year mortgage. If these men were tied down with obligations, and families, and houses, they would cease to be a volatile element in society, the thinking went.
It's difficult to get decisive evidence as the phenomenon tends to happen at the same time as other things, and it basically devolves to game theory. At the very least, it seems like a very, very bad idea to incentivize the population with the largest capability to destroy, to destroy. Especially when they are necessary to create, educate and set an example for the next generation of men.
But I think the same type of question could be asked about your post. For example, the idea of "surplus men": I've heard this before, but is there some statistical "systems theory" view of history that can give us plots/data from which this will jump out?
Some parts of this are obviously true:
> War usually leads to a surplus of women
There are certainly many stories after the American Civil War about this -- about women who were unable to find husbands after the war.
> and a lack of male competition in any other area (jobs, land, wealth, opportunity)
This makes some sense (jobs, mates in particular), but I'm not sure about land, wealth; that could easily remain in the hands of elites.
> starting a war is seen as a society killing off its surplus men in hopes of getting something out of it (every war is a rich man's war)
I absolutely see this -- elites gain some geostrategic prize, at the expense of other mens' lives -- but, to clarify, I don't think the mechanism by which this helps elites is reduced domestic competition among men, since they're already elites; they've already won the domestic competition.
> incentivizing men to play according to the social contract rather than being violent or giving up.
It feels like the examples of ISIS, Hikikomori, and monasticism (Western and Eastern) are all relevant here. But it would help if a clear line of evidence could be assembled for one of those examples.
I sense that your argument comes from a conservative direction, but I'm aware of queer/feminist writing to the same effect, e.g.:
https://www.amazon.com/Loser-Sons-Authority-Avital-Ronell/dp...
I haven't read this beyond the summary, and don't know if its evidence is actually any good. But it's sometimes worth noticing when opposing political orientations agree on some underlying assumption.
Actually the same idea appears in Margaret Atwood's Oryx and Crake, in which part of her fantasy is that men's value has been reduced to peeing in a circle around the village to mark the territory. She does recognize that this "utopia" cannot last though (which she deals with by having a man invent the utopia in the first place -- "of course it's flawed").
So, plenty of people on the other side of the aisle do seem to agree with you about the "facts".
A rebellion is an act to pass the negative yield of labor back to the owners of financial capital and land but all at once instead of slowly each year.
To prevent rebellions, the government subsidizes the owners of financial capital and land by paying welfare, a bribe to make the abandoned behave by making them navigate bureaucracy and blame them instead of the original cause of their dependency on the bureaucracy. This is a subsidy, because the cost is not actually paid by the owners of financial capital but by the portion of the working class that is employed so that they hate the recipients of their taxes instead of the owners of financial capital and land that that created and benefited from the class of artificially helpless people.
https://sites.google.com/a/lanepl.org/columns-by-jim-blount/...
I think it gives a decent window into what was being discussed then, as I understand it.
It's a little hard to Google references that give a feeling for the issues that were on peoples' minds at the time (like the precedent of the Bonus Army), because attention/salience (what "matters" in the culture) has changed a lot since then (and even since 2016).
I had thought that maybe the bill itself would have a revealing preamble, but it doesn't really. The official name does say something though: "Servicemen's Readjustment Act of 1944".
I think people were very interested in taking lessons from WW1 and avoiding the same problems that had occurred afterwards. Not only would the GI Bill be emblematic of this, but also, say, the difference between the Marshall Plan and the Treaty of Versailles.
In areas where developable land is very plentiful - rural, deserts, minimal environmental/nimby protections, etc. - land prices will remain low and house prices should be constrained by building costs. In the same way that we don't expect TV or car prices to go up very much with lower interest rates, even though you consume durable goods over 20years, as competition holds the prices to what it costs to make rather than how you benefit from them. Over the long term, it used to be that house prices tracked construction costs pretty well.
However in areas where the fixed quantity of land is binding - urban, or areas with stringent protections and managed growth policies - land and house prices will be bid up to what people can afford via monthly payments, and will therefore respond greatly to interest rates (and IR expectations)
Further add on that high property taxes in some regions can dilute the costs associated with financing changes (if interest rates increase from 1 to 2%, but you're paying 5% in property taxes, that's only a 7/6% increase in your costs)
edit: to summarize, where supply is elastic, interest rate reductions should cause quantity supplied to increase, price to remain the same, and monthly costs to decrease. Where supply is inelastic, the quantity stays the same, monthly payments stay the same, price increase. We've possibly moved into an environment with more supply inelasticity in recent history.
Go kneel and beg in front of the owners of capital and land. Your concerns will be ignored.
You think this is psychotic? I doubt that, I can guarantee that secretly you are thinking the same thing. You would rather see yourself and everyone else around you suffer, for a chance to become one of the corrupted yourself.
The "working class" does not derive anything from interest and capital gains. It pays more in that it could possibly get back. It is in its collective interest to abolish all rent seeking and let capital yields and profits shrink to 0% as perfect market theory predicts.
But no, everyone wants to start their own feudal little dynasty. Eternally passing our obligation to work for them to their descendants, despite the fact that we won't be alive when those descendants are alive, forcing us to pass the debt onto our own descendants.
They did not take housing expenses out, which is what many people whose sole exposure to economics is via memes seem to think/be encouraged to think.
This means that as interest rates rise, housing expenses may spike - forcing employees to demand more money. Given the size of the housing budget in many households, this effect could be surprisingly strong.
I don't think the CPI methodology makes any assumption about elasticity of any particular component, though; it's a measurement process. People who are making interpretations or predictions based on CPI might be using faulty assumptions.
But headlines like this serve to reinforce the notion that somehow the "official" inflation figures are wrong. Which gives power to politicians who deliberately push this narrative; which is to day, dishonest ones.
The fact is, lots people hear that "housing prices" aren't included in the CPI, and interpret that as housing costs are not included. There is no nuance for most people; for them, housing "prices" and housing "expenses" are the same thing.
Normal people who are not economists or interested in economics at all are voters. It behooves people in the industry to speak clearly and plainly about these topics. Failure to do so hands that opportunity over to unscrupulous pundits who will speak plainly, but with a bend that favors their political opinions.
However, I'm not sure that's the struggle people have. From what I observe, they question if CPI is the best metric for measuring inflation, not whether or not durable assets should be considered consumables.
That is just a technicality. Housing is the greatest one time and recurring expense most people have and change in prices for housing has the greatest impact on their perception of how expensive things are.
I don't think the CPI is meant to capture people's perception of how expensive things are. If their perception differs from the reality of what they're consuming, it's more important for CPI to track the consumption than the perception.
"The CPI is wrong because it doesn't match people's perception" doesn't make much sense to me.
Taken into account, at least in Canada:
> In measuring changes in the cost of owned accommodation, Statistics Canada considers six essential components: mortgage interest cost; replacement cost; property taxes; homeowners’ home and mortgage insurance; maintenance and repairs; and other owned accommodation expenses.
> Rather than looking at the price of purchasing a house, the idea is to treat a homeowner as if they are renting their own dwelling, and track any expenses that a landlord would normally incur. As Fred Barzyk, Director of Consumer Prices Division explains, the question we want to answer in the shelter index, is “what does it cost to run your home?"
* https://www.statcan.gc.ca/en/blog/cs/shelter-cost
See notes on 2021:
> The owned accommodation price index (+4.1%) rose at a faster pace than the rented accommodation price index (+1.7%) in 2021.
> The upkeep of a property, or the homeowners' replacement cost, was up 11.4% on an annual average basis, compared with a 2.0% increase in 2020. The homeowners' replacement cost, a key driver of owned accommodation price growth, is linked to the price of new homes. New home prices rose consistently throughout 2021. The homeowners' replacement cost increased the most in Manitoba (+17.6%), with Prince Edward Island (+14.7%), Quebec (+14.3%) and Nova Scotia (+12.1%) also recording strong annual average movements.
* https://www150.statcan.gc.ca/n1/daily-quotidien/220119/dq220...
That's the problem with house prices, regardless of whether or not you think they should be included in CPI, being that the average person is likely to only buy one or two in their life, leaving very little data about how their perception has changed over time. The best reason for choosing a measure of consumables is that they are purchased frequently by most people, providing information about how perceptions are changing on a regular basis.
> has the greatest impact on their perception of how expensive things are.
That would be more significant if we were talking about cost of living, but since we're talking about inflation, the actual goods selected in the basket don't matter all that much. The basket just has to be large enough to filter out the noise of individual products that have increased in value at a rate faster than the currency (or vice versa). And as it pertains to Canada, housing has appeared to be especially noisy of late, making it a poor choice for tracking inflation even ignoring all of the other problems with it.
Right. Inflation is supposed to be a measure of erosion in purchasing power. Why should we leave out durable assets (which are purchasable things) from that measure and only consider consumable things? I get that's not CPI's intended purpose, but then why do people use it for defacto inflation?
Housing prices are not considered in the CPI ("cost of living") because houses are mostly an asset. Cullen Roche has had some good stuff on the topic:
> House prices are an interesting case. Houses are considered capital investment by the [US] BLS. So, when the value of your home increases that's a good thing as you didn't consume the house. In other words, you don't need to replace the house. Consumption goods are different in that you need to replace the thing you bought. Inflation is very bad for consumption goods because it costs you more to replace that thing each time you need it (food, for instance).
* https://www.pragcap.com/forum/topic/assflation/#postid-2165
* https://web.archive.org/web/20210929154549/https://www.pragc...
> The BLS views housing as a mostly “investment” item as opposed to a consumption item. So, for instance, when you consume a hot dog and have to replace it then the cost of replacement is a direct reflection on your well-being. A $1 hot dog that costs $2 one year later is a material change in living standards, all else equal, since the hot dog is an asset that you literally consume. A house is much more complex. […]
> Of course, anyone who owns a house knows that it’s not that simple. You do basically consume your house over time. For instance, my home has appreciated substantially since I purchased it just 5 years ago and underwent a hellish remodel. At that time the cost of replacement was roughly $300 per square foot. But in the ensuing years the cost of replacement has increased to $400 per square foot. As my physical home falls apart over the years I will need to replace it. But the key point is that, as I replace these components the housing market is likely to revalue the total home value to account for this investment. So even though I am consuming my house over time I am very likely to recoup those costs.
* https://www.pragcap.com/should-house-prices-be-in-the-cpi/
The "C" in CPI stands for consumer. Houses aren't in the CPI for the same reasons stocks and bonds are not: we don't consume them to live.
'Shelter' is considered in the CPI generally though:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
For the homeowners' replacement cost, at least in Canada:
> In measuring changes in the cost of owned accommodation, Statistics Canada considers six essential components: mortgage interest cost; replacement cost; property taxes; homeowners’ home and mortgage insurance; maintenance and repairs; and other owned accommodation expenses.
> Rather than looking at the price of purchasing a house, the idea is to treat a homeowner as if they are renting their own dwelling, and track any expenses that a landlord would normally incur. As Fred Barzyk, Director of Consumer Prices Division explains, the question we want to answer in the shelter index, is “what does it cost to run your home?"
* https://www.statcan.gc.ca/en/blog/cs/shelter-cost
See notes on 2021:
> The owned accommodation price index (+4.1%) rose at a faster pace than the rented accommodation price index (+1.7%) in 2021.
> The upkeep of a property, or the homeowners' replacement cost, was up 11.4% on an annual average basis, compared with a 2.0% increase in 2020. The homeowners' replacement cost, a key driver of owned accommodation price growth, is linked to the price of new homes. New home prices rose consistently throughout 2021. The homeowners' replacement cost increased the most in Manitoba (+17.6%), with Prince Edward Island (+14.7%), Quebec (+14.3%) and Nova Scotia (+12.1%) also recording strong annual average movements.
* https://www150.statcan.gc.ca/n1/daily-quotidien/220119/dq220...
Focusing on subtle technical differences is not helpful for laypeople. Consider if you had a tire that kept going flat, so you take your car to the mechanic and tell them, "something is wrong with my wheel" then having them come back and say, "no there isn't." Because, technically to the mechanic, tires are the rubber part and wheels on the metal part, and there is nothing wrong with the metal part.
That's what people are doing by saying "house prices aren't included" in the CPI. While technically correct, the implication to normal people is that the costs associated with shelter are completely omitted from the CPI.
There is plenty of genuine spirited debate to be had over the basket of goods. There is room for using one indicator over another for any given application. Even against that backdrop shadowstats is clearly just a grift.
Absolutely, but this kind of debate needs to be done in good faith and with the understanding that whatever new basket of goods one comes up with is unlikely to be applicable to any more people in the economy.
The basket of goods is like a a medium shirt. It's not going to fit anyone very well, and it won't fit most people at all. Swapping the shirt out for a large isn't going to improve the fit for people as a whole, it will just change the people who fit in it.
The curse of dimensionality rears its head when talking about "averages" over a number of dimensions. There's not really a good methodology to distill such a complex topic down to a single figure.
https://fullstackeconomics.com/no-the-real-inflation-rate-is...
tldr: they don't actually reconstruct the old methodology. They add a fudge factor based on how much they think the new methodology increases the inflation rate. And that estimate is based on a basic math error.
Central cannot control energy price increase/decrease. central banks cannot control global wage levels. Thus central banks cannot control inflation in a global market.
However interest rates set by central banks greatly effect housing prizes since people calculate what mortage they can afford monthly given bank interest rate.
This inflation rate vs manipulation of interest rate by central banks has inflated house prices.
I don't think we have a good understanding of all the effects changing interest rates have.
This is simply false. What a central bank can affect, in the long run, is the average level of prices(including wages) denominated in the currency they control, even globally. Inflation in the price level of other currencies, on the other hand, is mostly irrelevant to a particular central bank.
It is true that central banks cannot control a relative change in prices of energy or any other single good, but that isn't even their goal.
Japan enters the chat
Productivity and inflation are very related to each other. Per your chart, "Japan enters the chat" in the mid 1980s. If you're curious what has happened to Japan since the mid 1980s you can read https://en.wikipedia.org/wiki/Lost_Decades (this wikipage was pluralized from "Decade" to "Decades" in the last couple of years, due to the continued struggles of the Japanese economy).
To the extent that you hold central banks responsible for the national-economic state of things, Japan's central bank ought to be considered a massive failure.
If you lean towards the Krugman side of things, you can find his explanation of that failure here: https://web.archive.org/web/20161203180303/https://krugman.b...
If you prefer the Scott Sumner side, you can find his explanation of that failure here: https://www.themoneyillusion.com/why-japans-qe-didnt-work/ https://www.themoneyillusion.com/the-other-money-illusion/ https://www.themoneyillusion.com/rooseveltian-resolve/
Personally, I tend to sympathize with central banks and take a more muted view of their powers at the national-economic level. In my model, Japan's central bank was/is powerless given the magnitude of non-financial headwinds the country face(d) after the opening of China and beneath 2 decades of aggressive anti-Japanese trade policy from their largest trading partner (USA). This is a (slightly) heterodox take, and you can read my articulation of this view here: https://www.conradbastable.com/essays/unequal-growth-the-zer...
But whatever your take, Japan's economic struggles should not be mistaken for signals of success.
It's "losing" because Japan wants inflation. They've had the opposite problem the rest of the planet has. Inflation (generally) means there's some kind of economic activity.
I'm well aware of Krugman's thoughts on Japan. See his 1998 paper:
* https://www.brookings.edu/bpea-articles/its-baaack-japans-sl...
My post is a counter-point that somehow a global economy (always) means that central banks can't do anything. Just compare the US and the EU in the 2010s, and you'll see different trajectories.
> Suppose you buy a home for $500,000, financing the purchase with a mortgage at a 6.4 percent interest rate. A few years later, you sell for $600,000. Interest rates have fallen, and the new buyer is able to get a mortgage at 4.7 percent.
> The price of the home has risen by 20 percent, so you could just say the cost of housing has gone up 20 percent. But that would be misleading. Assuming a 20 percent down payment, your original mortgage would have cost $2,502 per month, while the new owner’s mortgage would cost $2,489 per month. The monthly mortgage payment required to own the home actually went down.
But since the total lifetime spend on a house is absolutely lower if the interest rate over the life of the loan is lower, then it's true that lower interest rates make homes cheaper over their lifetimes. I don't understand why the writer of this article would chose to focus on the deceptive monthly payment argument rather than the concrete interest-rate argument.
We need something similar and conspicuous for mortgages. Let people really see/feel the interest.
Another way I’ve seen it phrased is in terms of buying power, and I think that can be effective. I’m ball parking some numbers here, but I think I saw something along the lines of, for the same monthly payment you can buy a $275,000 house with 5% interest or a $350,000 house at 3% interest. I think that drives the point a bit
People who can't (or don't want to) math aren't likely to suddenly do so because of an additional disclosure.
The disclosures you get from the lender are already required to contain a a "FINANCE CHARGE" which is the total interest you will pay on the loan, "The dollar amount the credit will cost you". They also have "TOTAL PAYMENTS", the "The amount you will have paid after you have made all payments as scheduled."
The forms are formatted clearly. If you want to know what the number is, it is right there with an explanation.
It’s a pretty obvious play. I go into a dealership, and the first question the salesman asked me is “what do you want your monthly payment to look like.“ And I always respond with something (a little snarky) like “ I don’t care what my monthly payment looks like, I care about getting a good deal.” While a little snarky, I’m also trying to signal to cut the crap and let’s do business.
More consumers need to think that way. In the mortgage context, I think it makes a little more sense to focus on the monthly payment. However, when brokers are using 2 or 5 year ARMs to sell the “monthly payment,” that’s pretty unconscionable.
EDIT: Plus, if you want to get even more exact, you should be comparing the interest portion minus the tax deduction to rent, because (at least in the US) the government lets you deduct mortgage interest from your income.
If you're able to take a 30 year loan w/ a 2.7% interest rate and invest the rest of the equity, your house is cheaper than someone who buys it outright in cash.
The only time I would disagree with you, however, is for poor people. "Mortgage principle is not an expense" is correct over a long-horizon, but families living month-to-month that somehow managed to purchase a house are severely unlikely to be able to really capitalize on any value generated from that. I think your comment primarily applies to upper middle-class and wealthy people.
But the working poor are also the most likely to have to change jobs, which either forces them into a long commute or having to sell the house before they're really built any equity.
Make sure to not use the deduction verbatim, but calculate the amount that the deduction reduces your actual tax bill.
People also wildly underestimate just how much taxes and maintenance can be, because they're not monthly - if you have to escrow taxes it's more noticeable, and if you correctly account for maintenance it's surprisingly high, even on relatively new homes.
The mortgage deduction only applies if you are not taking the standard deduction, and even then only the differential really applies (as otherwise you'd take the standard deduction) - something like 87% of filers will take the standard deduction.
Remember that if you have a copy of TurboTax or something similar laying around, you can do "what if" scenarios by inventing various 1099-INTs and playing around with them.
Even if a house is fully paid off, there are a ton of expenses that relate to ongoing maintenance of a house and property that really can add up--plus taxes and insurance as you say. The details vary by age, location, type of property etc. But $1K/month is not unreasonably high especially given that a lot of homeowners will have some sort of expensive job (some of which are admittedly upgrades) every handful of years or so which will easily chew through a year of that budget.
If the idea is you want a immaculate house with everything perfectly maintained then you can have high costs, but for example my microwave door handle busted off, I rigged up a fix, it looks terrible but not bad enough that I want to spend the money to replace it until it is completely dead.
The recommend replacement interval is useally a little pessimistic especially if you buy quality meterials and pay to do the job right.
I agree the parent lifetimes are probably a bit low. But the basic point that annual costs for a house/property are significant even if you can trim a bit at the margins.
My point is mainly maintenance costs are a lot more flexible than rent. You don't fix a washing machine, you won't have a washing machine. Don't pay the rent and your out on the street.
Part of me is also sort of thinking that each year I wait the heater I will get in the future will be a little more efficient. I've been thinking about replacing it since I moved in but just recently I'm hearing people in my area talking about heat pumps so I might see if I can give it another year or two and see if that becomes more mainstream and go that way.
this isn't entirely true either. You need to live somewhere. Yes you own the equity, but it's always going to be locked away as "home equity". It has an advantage of giving you higher debt flexibility by taking loans out against it - but to say it is the same as banking cash as compared to renting is wrong.
Unless you downsize your living or sell the house without buying another one (which means you will be renting) that money is effectively gone as far as liquid cash is concerned
House prices are determined to a large extent by interest rates [1]. People have a certain amount they are willing to spend on a mortgage payment each month. If rates are lower, that amount buys a bigger mortgage, so house prices are higher.
[1] https://www.bankofengland.co.uk/-/media/boe/files/working-pa...
Mortgages let you pay 2052 dollars against 2022 prices and that’s under appreciated by the financially illiterate.
One of the hardest things for me w.r.t. finances is removing the emotional aspect. I don't get worked up about a fee added onto my mortgage because when looking at it over a longer period of time it's insignificant compared to what I can do instead with my money. Like right now I could pay off my remaining student loans without issue but why would I while they sit at 0%? If they restart payments I'll wipe it out and there is a part of me that just wants them gone but it would be an emotional decision not a financial one. Paying off my car early was right on the line and I probably made more of an emotional decision when it came to that but no one is perfect.
Usually it auto-expires when you pass the 20% equity mark based on original sale price.
It's easier with a local lender as opposed to someone who sold off the mortgage, of course.
Can you please clarify, or point towards additional reading material?
* The government lets you deduct your mortgage interest from taxes * The house will appreciate in value over the term of a 30 year loan (almost certainly) * You are paying for your interest and payment in tomorrow's money
Also, what am I going to do instead, rent? My rent can go up $50 bucks a year where my mortgage payment is locked in. For most people, home ownership is the safest and best way to build a retirement nest egg and a tangible asset to borrow against in times of trouble.
The entire thing also creates a cycle of "house prices must go up!" which further exacerbates the problem, at the cost of those who haven't been able to buy houses. Or worse, it creates a large amount of debt which is begging for a 2007-2008 repeat.
There's also the cautionary tale of "there is enough housing, just not enough affordable housing", as well as VCs convincing governments to tear down homes in favor of other things, further reducing the number of homes.
Then again, there's the darker perspective that lack of medical staff / medicine will significantly lower the lifespan of several generations.
This is effectively not true anymore.
> Also, what am I going to do instead, rent? My rent can go up $50 bucks a year where my mortgage payment is locked in. For most people, home ownership is the safest and best way to build a retirement nest egg and a tangible asset to borrow against in times of trouble.
I'm going to push back a touch on this, it's not really true. Mortgage rates don't usually change in the US(because we take 30yr fixed mortgages generally). But housing costs do go up for owners: property taxes, and property maintenance.
Generally renting vs owning is mostly a wash, sometimes one is cheaper than the other, just depending on the local housing market.
Historically property has a about a 1%/yr real rate of return, so housing basically keeps up with inflation, but not much more. I know recent history makes people think this is not true, but it really is. It seems unwise to think this recent history will continue forever. Equities historically get a 4-6%/yr real return, drastically outperforming the historic returns of real estate.
But yes, lots of people tend to not save for retirement, making their houses their de-facto retirement savings. The problem is, they have to live somewhere, making their house value somewhat hard to spend in retirement.
Care to explain? Is this because the standard deduction is so high, it's generally not worth itemizing for most people since the Trump tax system adjustment? Genuinely curious; I'm a current renter, hopefully purchasing in the next couple of years. But this is an important part of the buying calculus.
But the higher standard deduction is set to expire in just 3 years (2025)[0], which will cut it in half. That may or may not get extended. So you may want to calculate if you'd be in the ~26% of filers who'd benefit from itemizing if it did expire.
[0] https://taxfoundation.org/look-ahead-expiring-tax-provisions...
> But this is an important part of the buying calculus.
I would argue it probably shouldn't be.
Anyways, like I mentioned, sometimes renting is cheaper, sometimes buying is, I'd recommend buying whenever owning is cheaper. It likely will change while you hold the property, but no sense in over-spending on a property if you don't have to.
Buying property tends to take a good while, don't get so fixated on a particular house so much that you bid ridiculous amounts for it. It might take a few years once you start shopping.
Try to put 20% down if you can, and try to limit your purchases to a single house for your lifetime. Transaction costs will likely eat you alive if you transact all the time. Illiquid transactions are always such a pain.
Good luck on your house hunt!
These numbers are a bit high, but definitely in the ballpark [1]. BUT, I think that framing it as total interest + principal is also misleading. Let's say you locked in an interest rate of 2.75% in 2020-21. Your total interest payments on a 300k house (with 20% down) would be $112k, so total P&I would be $412k. Someone might look at this simplistically and think, wow, I'm overpaying by 37% if I take out a mortgage. But at a 2.75% rate, anyone who is financially savvy is going to recognize that as a steal. It's almost like free money, because it's being paid off over 30 years. Your $1500 monthly payment might seem like a lot now, but even with relatively low inflation, your payment in years 15-30 are going to seem like a bargain when they come around. But it's hard for many people to think in those terms.
[1] Mortgage rates right now are around 4.75% on a 30 year. Assuming 20% down on a 300k house (60k), you would take out a loan for $240k, and over 30 years you would pay $210k in interest, or a total of 510k in principal + interest. Your monthly P&I would be about $1,530.
Why? because they have a motive. The motive is to put out a propaganda piece to try to convince the FED not to raise rates.
Look at this AI triggering headline at CNBC this morning! They are using the FEDs "favorite" inflation measure, which is 4 points lower then the typical number quoted!
https://www.cnbc.com/2022/05/27/the-feds-preferred-gauge-sho...
Wondering why stocks are up today?
Present value of $600k paid over 30 years is less than $600k. Depending on the discount rate it might be even less than $300k now.
You're bringing up an important point about buyers often left unaware of their total outlay, but on the flip side, their home is usually an appreciable asset, they are free to re-fi, and they also get to deduct mortgage interest.
That seems so blindingly obvious a flaw in the old methodology that I’m surprised that was ever implemented in the first place.
Think of the Dow Jones Industrial Average. Nobody would construct a price-weighted index today: it has some really poor properties that are avoided by weighting by market capitalisation instead. But the Dow sails on.
> The price of the home has risen by 20 percent, so you could just say the cost of housing has gone up 20 percent. But that would be misleading. Assuming a 20 percent down payment, your original mortgage would have cost $2,502 per month, while the new owner’s mortgage would cost $2,489 per month. The monthly mortgage payment required to own the home actually went down.
Falling interest rates have kept houses affordable at inflated prices. Because most housing is purchased with debt, the change reflects the reality that most owners are paying off a mortgage. The change made by government prevents interest rate fluctuations from interfering with the CPI calculation.
Over time, the change resulted in less volatility of the CPI, but no major changes when viewed from a multi-year perspective.
A big problem in the housing debate is that almost everyone (lay people, media, politicians, advocates) carelessly conflate "houses", "homes" (including apartments/condos), "real estate/property" (land + structure), and "housing" (including buying and renting), and don't even try to factor in interest rate effects, so all the math is just nonsense mixing apples and sharks.
This calculation ignores the down payment, which would be $20,000 more for the buyer a few years later. Seems like a better comparison is to amortize the down payment somehow into the calculation, since buyers have to save up for the down payment while renting prior to their first home. Anyways, the full costs of purchase are not accounted for with this method.
Also, what about the other necessary costs of owning a home like closing costs, real estate commissions, insurance, property taxes, pest control, repairs, hoa fees, etc?
This way, you can look at your salary, and determine whether you're gaining income above your own inflation, or not.
If I started buying a better cut of steak or more hamburger and less ramen than last year, would I really be able to tease out that difference without an insane amount of record keeping/data entry?
The numbers posted are wholly disconnected from the reality in our wallets.
If people would take 300 year mortgages that would put your kids into debt bondade if thry could
Add on the fact that a quasi-government body is the primary provider of that debt and not just through the central banking system but in many cases direct to consumers.
As for why a moving average isn't used for this one price, if they did it that way prices would be 12 months old and wouldn't reflect the most up-to-date economic conditions.
Why did the BLS do this in the 1980's, no one is asking? Well, I will tell you, in a another simple chart:
https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
Check out where the FED rate was in the 1980's.
TLDR, they did not want housing prices to be included in inflation since they knew they were going to go on this rate lowering binge which would increase the price of housing.
The folks in that article are trying to tell you housing prices are cheaper because you are paying less per month???? What???? HA! No, they are hiding inflation by using rent equivalent, which is not even close to the real rent prices. If you are paying more to own a house (if you still have a mortgage you do not own your house) then housing is no2 more affordable! Wow, the doublespeak!!!
There isn’t. The word inflation represents many, including wildly divergent, ideas.
And many of the very different things represented by inflation serve very different purposes, and that’s why they’re changed, because different measures of inflation help measure different concepts. Core inflation is just one of many different measures of inflation.
If OPEC decided to stop producing oil altogether you bet there would be “inflation” caused by oil prices but that doesn’t mean the FED should be goaded into making changes to policy.
It doesn't, it produces many different Consumer Price Indices, plus a variety of industry-specific Producer Price Indices, all are measures of inflation.
Why should not? Inflation is just change of price level. Price level is just ratio of circulating money to real production. If OPEC decided to stop producing oil, that would create massive negative shock to real production, so FED should restrict circulating money to maintain that ratio.
And not the main one produced by the BLS. Core CPI is the headline CPI with several items removed.