๐Ÿ“ˆ TKer by Sam Ro

๐Ÿ“ˆ TKer by Sam Ro

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๐Ÿ“ˆ TKer by Sam Ro
๐Ÿ“ˆ TKer by Sam Ro
Why home prices and rents are creating all sorts of confusion about inflation ๐Ÿ˜–

Why home prices and rents are creating all sorts of confusion about inflation ๐Ÿ˜–

How is the government measuring shelter inflation? ๐Ÿคจ

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Sam Ro, CFA
Oct 19, 2022
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๐Ÿ“ˆ TKer by Sam Ro
๐Ÿ“ˆ TKer by Sam Ro
Why home prices and rents are creating all sorts of confusion about inflation ๐Ÿ˜–
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Rents and ownersโ€™ equivalent rent are accelerating higher. (Source: BLS via FRED)

Private sources of home prices, like S&P CoreLogic Case-Shiller and the National Association of Realtors, have reported declining prices.

Private sources of rents, like Zillow and Realtor.com, have reported declining rent prices.

So why do authoritative measures of inflation like the Bureau of Labor Statisticsโ€™ (BLS) consumer price index (CPI) show that shelter prices โ€” which include rent of primary residence (a.k.a., tenantsโ€™ rent) and ownersโ€™ equivalent rent (i.e., how much a homeowner would have to pay to rent their currently owned home) โ€” continue to accelerate higher?

To begin to understand this, you first have to remember that most homeowners donโ€™t buy a new house and move into it every month, and most renters donโ€™t enter into a new lease every month. So most folks will go months or years without being affected by these regularly reported moves in home prices and rents.

DISCLAIMER: Before continuing this discussion, I will caveat by saying Iโ€™m no econometrician, and weโ€™re dealing with some complicated stuff that can get profoundly wonky.1 Iโ€™m mostly attempting to offer some high-level clarifications on what seem like discrepancies in the governmentโ€™s inflation reports.

Why home prices havenโ€™t caused the CPI report to go haywire ๐Ÿ“ˆ

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