Real Estate Costs - What is Measured vs What is Experienced
February 16, 2022
Last week’s CPI number was undoubtedly hot at 7.5%, the highest reading since 1982. But a closer examination of the data reveals that inflation may actually be much hotter than reflected by the CPI. Owner’s Equivalent Rent (OER), one of the largest factors impacting the CPI number, has historically understated the biggest moves in housing costs and is worth examining thoroughly. Which line more closely relates to your housing costs? Case-Shiller vs. OER?
“Housing units are not in the CPI market basket. Like most other economic series, the CPI views housing units as capital (or investment) goods and not as consumption items. Spending to purchase and improve houses and other housing units is investment and not consumption.”
“The expenditure weight in the CPI market basket for Owners’ equivalent rent of primary residence (OER) is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence: If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
On the Case-Shiller Index
“The S&P CoreLogic Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate nationally.”
Which measure is more representative of housing market inflation?
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