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If the fed manages to slow the housing boom through fund rate increases, isn't there a good chance that that will eventually increase the CPI as rental housing prices rise? How big do you expect that effect to be? What kind of lag time?
Everyone expects the end of the housing boom to happen in slow motion. Buyers become unwilling to pay boom prices while sellers are unwilling to accept a decline. What about the rental market at the end of the boom? It must react more quickly.
Mark, in most of the US there are significant rental vacancies, so it will take some time for rents to start increasing. It might take a few years to get back to nornal vacancy rates.
Also, with the method the FED uses to calculate CPI, I think a housing slowdown will lead to higher reported CPI.
Mark, sorry I missed your question ... the method used for calculating OER might show a significant increase even though most rent are barely increasing. This is because the rental market is "thin" for most higher priced homes and is based on survey results ...
'... when housing prices fall, a trend that most people would deem anti-inflationary, and renting becomes more attractive than owning, the index might process the information as evidence that inflation is on the rise. "We got a great deal of criticism that we were overstating inflation in the early 1990's, because housing prices were declining and rents were going up steadily," Mr. Jackman said.
If the fed manages to slow the housing boom through fund rate increases, isn't there a good chance that that will eventually increase the CPI as rental housing prices rise? How big do you expect that effect to be? What kind of lag time?
Everyone expects the end of the housing boom to happen in slow motion. Buyers become unwilling to pay boom prices while sellers are unwilling to accept a decline. What about the rental market at the end of the boom? It must react more quickly.
Mark, in most of the US there are significant rental vacancies, so it will take some time for rents to start increasing. It might take a few years to get back to nornal vacancy rates.
Also, with the method the FED uses to calculate CPI, I think a housing slowdown will lead to higher reported CPI.
Best Regards!
Thanks.
re: with the method the FED uses to calculate CPI, a housing slowdown will lead to higher reported CPI.
Why? If rents don't rise, what CPI component will a housing slowdown cause to rise?
Mark, sorry I missed your question ... the method used for calculating OER might show a significant increase even though most rent are barely increasing. This is because the rental market is "thin" for most higher priced homes and is based on survey results ...
This NY Times article touched on it:
'... when housing prices fall, a trend that most people would deem anti-inflationary, and renting becomes more attractive than owning, the index might process the information as evidence that inflation is on the rise. "We got a great deal of criticism that we were overstating inflation in the early 1990's, because housing prices were declining and rents were going up steadily," Mr. Jackman said.