BLS gets home prices wrong(on purpose?)

Started by Riversider

about 14 years ago

Posts: 13573

Member since: Apr 2009

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Rent and rental equivalence weights for index aggregation The expenditure weight in the CPI for rent is obtained by directly asking sampled renter households the following question: If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities? ----------------------------------------------------------- http://www.bls.gov/cpi/cpifact6.htm

Response by Riversider

about 14 years ago

Posts: 13573

Member since: Apr 2009

OER has the single largest weight of any component in the CPI, at 23.957%

CPI Flaws

One of the biggest flaws in the CPI is its measure of home prices. The CPI does not track hope prices per se, rather the BLS uses a concept called "Owners' Equivalent Rent" (OER) as a proxy for home prices.

The BLS determines OER by asking the question “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”

If you find that preposterous, I am sure you are not the only one. Regardless, rental prices are simply not a valid measure of home prices.

Indeed, home prices rose three standard deviations from rental prices, a sure sign of a a housing bubble, and the Fed ignored it every step of the way.

http://4.bp.blogspot.com/-sKuMYQ0UOQA/T17nM1l8xWI/AAAAAAAAOko/iMgNI8EP2Y0/s1600/HPI%2B3%2BWays%2BA.png

http://globaleconomicanalysis.blogspot.com/2012/03/how-far-have-home-prices-really-fallen.html

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Response by Sunday

about 14 years ago

Posts: 1607

Member since: Sep 2009

Yes, let's ask owners how much they can sell their home for instead.

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