[HN Gopher] Why the government took home prices out of its main ...
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Why the government took home prices out of its main inflation index
Author : amacneil
Score : 125 points
Date : 2022-05-27 09:58 UTC (13 hours ago)
(HTM) web link (fullstackeconomics.com)
(TXT) w3m dump (fullstackeconomics.com)
| havblue wrote:
| A partial problem about cpi, as the article discusses, is that
| it's about what's consumed. So it's primarily beneficial for
| people living paycheck to paycheck and less beneficial for people
| trying to sort out the harder-to-commodify question of quality of
| life.
| sokoloff wrote:
| > Counting both the home purchase price and mortgage payments was
| double counting.
|
| That seems so blindingly obvious a flaw in the old methodology
| that I'm surprised that was ever implemented in the first place.
| pmyteh wrote:
| Often the first implementation is almost an MVP (we have no
| data on this, let's get some!) and once it's in place it has
| some inertia.
|
| 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.
| book_mike wrote:
| Ignoring what the value of a currency may be I wish buyers would
| reject bad prices. I really care about what the actual cost of a
| thing is from dirt to package. The companies that market, make
| and deliver products should make a profit but I'm not buying
| their Ferrari. Capitalism start with "No deal, not at that
| price."
| hattmall wrote:
| Capitalism begins to break down when the primary driver of
| purchasing power is availability of debt. Long term debt is
| particularly antithetical to the efficiencies promoted by a
| free market.
|
| 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.
| yossarian1408 wrote:
| Sounds less like capitalism breaking down and more like a
| regulatory issue.. could fractional reserve banking exist in
| a competitive banking sector w/o a central bank?
| ClumsyPilot wrote:
| Problem is the amount of money people will pay for a place to
| live is unlimited.
|
| If people would take 300 year mortgages that would put your
| kids into debt bondade if thry could
| mywittyname wrote:
| A 30 year mortgage is just below the threshold of being an
| interest only mortgage. Especially when looked through the
| lens of a 10 year length of stay in a house. Ten years into a
| 30 year mortgage, one will have paid something like 60% of
| the total interest on the loan.
| lupire wrote:
| > In 1983, the BLS switched to a new method called owners'
| equivalent rent.
|
| 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.
| Barrera wrote:
| In a nutshell:
|
| > 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.
| thawaya3113 wrote:
| The big problem is people believing that there is any one such
| thing as inflation.
|
| 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.
| KptMarchewa wrote:
| Sure, everyone has it's own personal inflation, but I don't see
| why can't we look at aggregate data.
| yossarian1408 wrote:
| It's not even that. There are different drivers of inflation,
| it could be spurred by supply shocks, increased demand,
| greater supply of money, uncompetitive markets arising from
| government capture, etc., the economy is so complex that when
| you consider all these moving parts, a claim like "interest
| rates go down, inflation goes up" starts to sound incredibly
| reductive.
| dragonwriter wrote:
| > Core inflation is just one of many different measures of
| inflation.
|
| And not the main one produced by the BLS. Core CPI is the
| headline CPI with several items _removed_.
| dopylitty wrote:
| This is a good point. The government really shouldn't be
| producing a single number and saying that's "the" inflation
| rate. It muddies the waters and makes it easy to think that the
| economy is some magic system where things just happen rather
| than the sum of choices by individual companies and consumers.
|
| 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.
| dragonwriter wrote:
| > The government really shouldn't be producing a single
| number and saying that's "the" inflation rate.
|
| It doesn't, it produces _many different_ Consumer Price
| Indices, plus a variety of industry-specific Producer Price
| Indices, all are measures of inflation.
| nradov wrote:
| The government doesn't produce a single number. The BLS
| produces multiple numbers and you can use whichever one fits
| your situation best.
| binarybits wrote:
| And then people frequently complain about these varieties--
| for example, that the BLS produces a "core" version that
| excludes food and energy even though there's also a version
| with that stuff included.
| sokoloff wrote:
| Same story with unemployment. Lots of people complain that
| U-3 doesn't capture some aspect of unemployment that they
| care about. Okay; that's why there are 5 other U-x
| measures...
| zajio1am wrote:
| > 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.
|
| 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.
| FollowingTheDao wrote:
| "The example that comes up most often is housing. Critics point
| back to the early 1980s, when the Bureau of Labor Statistics
| (BLS) made a fundamental shift in the way it calculates the
| consumer price index (CPI) for shelter."
|
| 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!!!
| djoldman wrote:
| The complexity is this:
|
| > 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.
| JohnJamesRambo wrote:
| But someone made $100k in a sale a few years later...
| isubkhankulov wrote:
| Do you have to subtract the mortgage interest expenses from
| $100k to get closer to their true net profit?
| diogenescynic wrote:
| The original home owners could also refinance at the lower
| rate. And when they buy a new home it would also be at the
| lower rate (and higher sale price).
| jjslocum3 wrote:
| Mortgage loan officers (and also car salesmen) do all in their
| power to redirect people away from the fact that they're going to
| fork over e.g. $600k in total interest and principle for a $300k
| sticker-price house over 30 years. They do this by focusing on
| the monthly payment rather than the actual total spend.
| Convincing buyers that monthly out-of-pocket spend is somehow a
| proxy for the actual purchase price is a powerful tool that,
| while not technically deceptive (you do, after all, have to sign
| a Truth-in-Lending statement when you finance a house),
| absolutely causes people to spend more than they otherwise would.
|
| 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.
| HideousKojima wrote:
| The monthly payment is often used because people are comparing
| the cost to rent, or the monthly cost of their current
| mortgage.
| cozzyd wrote:
| Or their monthly salary/expenses...
| thatfrenchguy wrote:
| You're forgetting about inflation here. Sure you're paying 300k
| of interest for a 400k house at 5%, but your mortgage payement
| keeps decreasing in real terms.
| PretzelPirate wrote:
| Do you benefit from inflation if your income or other
| investments don't go up in value? Someone owning a house and
| making $300k/year loses purchasing power at the same rate as
| their mortgage "value" drops due to inflation.
| TimPC wrote:
| You'd have to be in a pretty crappy situation to not have
| your income go up over a 25-year mortgage.
| rnk wrote:
| Same goes somewhat for home prices going up, but if you
| don't live in a booming tech city it might not hold true.
| I'm in one, my house is 4x in under 20 years. My payment
| was so huge when I got it, now it isn't so crazy.
| ar_lan wrote:
| The country would be in shambles if, over a 30 year
| horizon, your investments did not outpace that interest
| rate. There's a reason why the <3% interest rate era we
| just left was considered free money - especially entering
| into an 8% inflation USA.
| twic wrote:
| > 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.
|
| 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...
| khuey wrote:
| Yes, lower interest rates (and lower property tax rates)
| often just get capitalized into the price of the asset in
| supply constrained areas.
| joneholland wrote:
| Interest rate below inflation? I don't care about that 300k, I
| would have lost it to inflation anyways.
|
| Mortgages let you pay 2052 dollars against 2022 prices and
| that's under appreciated by the financially illiterate.
| joshstrange wrote:
| Exactly. My mortgage is at 2.25%, I'd be a fool to pay that
| off early in the current climate. I am stuck with PMI and I
| might consider refinancing or something like that in the
| future but if I can't get the lower rate then it might be
| worth it to keep paying.
|
| 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.
| tjr225 wrote:
| You can also eliminate your PMI if you can appraise your
| home at a price that escapes the difference, so keep an eye
| on that.
| germinalphrase wrote:
| Is an appraisal enough or is refinancing required?
| bombcar wrote:
| Check your loan documents, mine have often had a "if
| valuations go up you can pay for an appraisal when you
| cross 20% or it's assumed if valuations have gone up
| enough AND enough time has passed".
|
| 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.
| joshstrange wrote:
| I thought at some point I read that FHA loans don't have
| that? I'll look more into again in a few years when my
| house will appraise high enough.
| throwaway6734 wrote:
| Certain loans (like fha loans) have PMI for life
| illegalsmile wrote:
| I'm guessing your mortgage doesn't remove PMI after a
| certain number of years or 80% LTV?
| lr4444lr wrote:
| The greatest vehicle ever for the common man to leverage debt
| to his advantage.
| abrichr wrote:
| > Mortgages let you pay 2052 dollars against 2022 prices and
| that's under appreciated by the financially illiterate.
|
| Can you please clarify, or point towards additional reading
| material?
| snarf21 wrote:
| You are forgetting three things that changes a lot for home
| buyers:
|
| * 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.
| zie wrote:
| > The government lets you deduct your mortgage interest from
| taxes
|
| 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.
| dont__panic wrote:
| >> The government lets you deduct your mortgage interest
| from taxes > > This is effectively not true anymore.
|
| 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.
| rnk wrote:
| They are probably referring to the $10k salt limit this
| is the total deductible state and local tax and interest
| deduction. In any big city your property taxes are
| probably 5k+, add state taxes, you don't have any room
| under the 10k limit to deduct mortgage interest. That
| deliberate Republican property tax screw you change made
| a big difference (the old deduction was also a huge tax
| deduction for huger middle class to wealthy people).
| ghaff wrote:
| I assume that's the point they're making. With relatively
| recent tax law changes, it no longer makes sense for a
| lot of people to itemize--and if you don't itemize, you
| don't get a break on your mortgage.
| zie wrote:
| The other commenters covered the reasons just fine.
|
| > 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!
| niij wrote:
| They're correct; at least for the short term. A quick
| search tells me itemized deduction returns are only ~10%
| of tax returns right now, down from ~26% before the TCJA.
| So if you're MFJ you'd need ~$25,000 of home interest and
| other deductions before you'd even break even itemizing.
| Not counting the hassle of itemizing vs just claiming the
| standard deduction.
|
| 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...
| dont__panic wrote:
| Very interesting point about that higher standard
| deduction expiring in 3 years, conveniently after the
| next election. It'll be interesting to see how that pans
| out on a federal level -- lowering the standard deduction
| is equivalent to doubling the effective tax rate for many
| lower-income Americans, after all.
| dont__panic wrote:
| $50 sounds like an OK amount for rent to increase per month
| at lease renewal. In the last few years, many of my friends
| have had rent rise by $200-800/mo in a single renewal. Hell,
| the apartment I just moved from is renting for $600 _more_
| than I paid for it per month! That 's more expensive than the
| house I'm renting right now.
| BlargMcLarg wrote:
| I'd change the perspective. Both you and the GP are right,
| but all these benefits are used _against_ the consumer, to
| distract them from other things that are happening. It 's a
| subtle race to the bottom which, when looking at younger
| generations / lower classes and their incapability to buy,
| suddenly isn't so subtle anymore.
|
| 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.
| Qem wrote:
| Now that people have less children, or no children, and the
| population tends to age-out and shrink in many countries, I
| wonder if we'll reach a point where real state prices start
| to consistently fall every year, reversing the current
| trend, as people die of old age in large numbers leaving
| lots of empty properties behind.
| BlargMcLarg wrote:
| I hope so, but I also heard enough reasons to not expect
| this. Many countries are still projecting population
| increases well until 2030 (sometimes even 2050?). The
| Netherlands predicts population will continue to rise
| well until 2070, despite fertility rate fluctuating
| between 1.5 and 1.7 for five decades now. It's pretty
| similar to Japan, and Japan has only _just_ started
| decreasing in population.
|
| 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.
| lr4444lr wrote:
| Inflation is a monthly/annual measure (at least insofar as most
| economists are interested in it). Looking at monthly spend is
| the fair comparison.
|
| 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.
| chadash wrote:
| _> $600k in total interest and principle for a $300k sticker-
| price house over 30 years_
|
| 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.
| FollowingTheDao wrote:
| > 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.
|
| 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?
| Decabytes wrote:
| I was pleasantly surprised that Rocket Mortgage (Formerly
| Quicken Loan) actually has a calculator on the dashboard when I
| view my loan information that shows me how much interest I'll
| pay over the lifetime of the loan. I can even change my monthly
| payments and see how it will effect the lifetime interest of my
| loan and how much faster I will pay it off.
| thathndude wrote:
| Under federal law, when you get your credit card bill, the
| bank is required to include a breakdown of, for example, how
| long you have to pay if you only make the minimum payment,
| and how much your total payments will be if you only make the
| minimum payment.
|
| 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
| sokoloff wrote:
| While I would not object to what you propose, I doubt it
| would change behavior significantly. People who are
| inclined to think about the interest and overall costs are
| already easily able to access that information. People who
| aren't inclined will see 3 additional pages among the 120
| pages they see during closing or 30 they see during
| mortgage application/qualification process.
|
| People who can't (or don't want to) math aren't likely to
| suddenly do so because of an additional disclosure.
| cpwright wrote:
| > We need something similar and conspicuous for mortgages.
| Let people really see/feel the interest.
|
| 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.
| thathndude wrote:
| I blame consumers for falling into the trap. I'm not saying the
| sellers don't have a lot of responsibility here as well, but
| consumers need to be smarter.
|
| 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.
| SilasX wrote:
| It would probably be more helpful to state that as "the total
| sale/out-the-door price" rather than "a good deal". But
| otherwise, yes, definitely avoid thinking in terms of monthly
| payments (alone).
| willcipriano wrote:
| I don't think that's entirely fair. When I bought my house 6
| years ago I looked at the monthly payment and compared it to
| rent in the area. For my mortgage (and a small down payment) at
| the time I could rent something like a fairly run down three
| bedroom apartment or I could own a run down three bedroom
| house. If you can live somewhere for free you can think about
| it in those terms (and I think about smaller purchases like
| cars in those terms) but the monthly payment is a big factor
| when looking at alternatives. That house has gone up 50%
| according to Zillow but I wasn't planning on that, I just
| figured it was worth the down payment and upkeep to have the
| peace of mind that you wont get evicted because someone else
| bought the place and maybe get a little something when I move.
| irrational wrote:
| My monthly mortgage payment on a nearly 4,000 sq foot home on
| nearly an acre is about the same as local monthly rental of a
| 2 bedroom apartment. I can't decide if I got a deal or if
| local rental prices are crazy high.
| kube-system wrote:
| The house across the street from me rents for 2x my
| mortgage.
| rnk wrote:
| A lot of people can't afford the down payment to reduce
| the monthly payments. Plus the endless rumors of hedge
| funds buying up all the houses w cash to force renting,
| reduce supply.
| ryandrake wrote:
| One mistake a lot of people make is comparing their monthly
| mortgage payment to rent. You're not comparing apples to
| apples. You should be comparing only the _interest_ portion
| of the payment to rent. The principal portion is money you
| 're paying back into your own pocket in the form of home
| equity. Your actual "money that goes away like rent" expense
| is the interest. When you use this as your comparison, a lot
| more rent-vs-buy decisions swing over to "buy". Of course you
| also need to factor in amortized taxes, maintenance, and so
| on, but mortgage principal is not an expense.
|
| 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.
| jt2190 wrote:
| > ... minus the tax deduction to rent.
|
| Make sure to not use the deduction verbatim, but calculate
| the amount that the deduction reduces your actual tax bill.
| bombcar wrote:
| The "principle" amount on a 30 year is negligible for the
| first 7-10 years or so, which coincidentally is about how
| long the average homeowner owns a house.
|
| 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.
| ghaff wrote:
| >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.
|
| 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.
| bombcar wrote:
| Yeah, even a furnace replacement (was about $8k let's
| say, including AC) that should be done every 20-30 years
| is $25-35 a month - those things start to add up if you
| account for _all_ of them. Roofs are 40 year so you might
| escape that one, but all the appliances are probably
| 10-15 year lifespan, and most people wouldn 't even think
| of a new fridge as "maintenance".
| willcipriano wrote:
| One thing to note is you can put things off. My furnace
| is from the early 80's, I'll replace it when it dies but
| it works fine. I'm kinda looking forward to it so I don't
| have to use window units for AC anymore.
|
| 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.
| moistly wrote:
| Your old furnace may well be costing you more in fuel
| than the cost of replacement. A 1980s furnace is likely
| _well_ under 60% efficient, plus it drafts inside air up
| the flue. A new furnace will be 90%+ efficient and the
| firebox will use outside air.
| willcipriano wrote:
| My house is under 1200 sqft and at night in winter we
| turn the heat down real low and just use space heaters in
| the bedrooms to take the chill off. We also got new, high
| end windows in the bedrooms so the space heaters run for
| about 15 minutes total. Also I like to sleep cold.
| Payback time is something like 10 - 15 years if it was
| twice as efficient given the math I did. Instead of a
| heater I got the basement redone as that was becoming a
| issue.
|
| 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.
| ghaff wrote:
| You can incur "maintenance debt" like anywhere else and
| some cans kicked down the road end up not needing to be
| done or being done in a different/better way. But as
| someone who lives in an old house, you do need to keep up
| to some degree especially with things that are only going
| to get worse if left alone.
|
| 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.
| willcipriano wrote:
| I agree you have to think about it, but things like
| appliances generally don't cost more to replace if you
| wait. If you have leaky roof or a wet basement take care
| of it as it will be cheaper to do now but those types of
| things don't make up the bulk of the maintenance costs,
| it's mostly little stuff that you can let slide if you
| need to. Other things like pest control you can do
| yourself with a little reading and call someone if it
| gets out of hand.
|
| 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.
| throwaway0a5e wrote:
| Treating a mortgage payment as "money I'm lighting on fire"
| is the safe way to do it if the mortgage is on an asset
| that you can't liquidate in order to get access to the
| equity (because you're living in it).
| Der_Einzige wrote:
| Yeah you can. Boomers who hate their children do it all
| the time, it's called a reverse mortgage. You stay in the
| house until you die, then the bank takes it.
| cupofpython wrote:
| >but mortgage principal is not an expense.
|
| 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
| loeg wrote:
| You can discount the principal payments somewhat, too,
| because you'll lose 10% of total value selling.
| rnk wrote:
| Why do you lose 10% selling? 6% for real estate cartel
| commission I guess. If you are in a hot market you can
| use redfin or similar low rate companies, don't pay the
| buyers agent. I'm trying to talk myself into it. No one
| is doing $60k of work selling your million dollar place.
| loeg wrote:
| 6% to the cartel and another 3-4% in other transaction
| fees (title fees and insurance, excise tax, etc).
| ar_lan wrote:
| Rent vs Buy has fairly standard calculators, _especially_
| when you 're wealthy enough to factor in opportunity cost.
|
| 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.
| bombcar wrote:
| The key for the people who are poor is they need to stay
| in the house _much longer_ than normal, so that they
| begin to get the advantages of inflation and growing
| principle payments.
|
| 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.
| cokelee wrote:
| It's also important to include a sinking fund for expected
| maintenance costs when you own.
| ghaff wrote:
| And property taxes, insurance, utilities (which you may
| have in an apartment but will probably be lower than a
| house) etc. I live in an older house on a reasonable bit
| of land so my expenses are probably on the higher side.
| But I figure $1,000/month is a reasonable round figure
| for budgeting. Condos will be lower in general--though
| there's a condo fee in that case.
| helge9210 wrote:
| > $600k in total interest and principle for a $300k sticker-
| price house over 30 years
|
| 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.
| acd wrote:
| I still argue for that central banks got inflation wrong. Central
| banks set inflation target to to percent to try and control wage
| inflation. But wage inflation are globalized. So I argue that
| central banks tried to control local wage increase on a
| globalized market which is impossible. Central banks cannot
| control price increases on global market. Also central banks did
| not take into account increased housing prices in inflation data.
|
| 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.
| lumost wrote:
| This also effects larger Private Equity decisions. Moving a
| factory costs money, low interest rates in the US make it
| easier to borrow the money to do so. Lower interest rates also
| mean that assets appear cheaper relative to wages, meaning the
| asset price will be bid upwards to make up the difference.
|
| I don't think we have a good understanding of all the effects
| changing interest rates have.
| arc-in-space wrote:
| > Thus central banks cannot control inflation in a global
| market.
|
| 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.
| throw0101a wrote:
| > _Thus central banks cannot control inflation in a global
| market._
|
| _Japan enters the chat_
|
| https://fred.stlouisfed.org/series/FPCPITOTLZGJPN
| cjmb wrote:
| This is actually a picture of national failure, tantamount to
| celebrating a blowout losing scoreboard. It is not a model
| for others to copy.
|
| 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.
| throw0101a wrote:
| > _This is actually a picture of national failure,
| tantamount to celebrating a blowout losing scoreboard. It
| is not a model for others to copy._
|
| 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.
| recursivedoubts wrote:
| https://www.longtermtrends.net/home-price-median-annual-inco...
|
| 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
| nradov wrote:
| The CPI includes rent (and owner's imputed rent). No one needs
| to purchase real estate. That's an investment, not a living
| expense. Millions of people have started families in rented
| homes.
| recursivedoubts wrote:
| "you'll own nothing and you'll like it"
| ClumsyPilot wrote:
| Millions of people have started families in slavery too. And
| during the plague.
|
| What wisdom does this argument lead us to - basic hygene and
| human right are superfluous?
| nradov wrote:
| Renting a home is in no way comparable to slavery. Your
| comment is offensive, inflammatory, and off topic.
| ClumsyPilot wrote:
| I think you are misunderstanding my argument - the
| statement is not 'renting is like slavery'
|
| 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.
| smn1234 wrote:
| agreed to an extent - have rents prices (adjusted) ever been
| so high throughout history to make renting more difficult to
| afford than owning in many cases
| ntoskrnl wrote:
| A place where you live is not a living expense? That line of
| thought is how we got here in the first place. Things break
| in a house all the time, and it costs money to maintain. A
| house should be treated as a depreciating asset. We'd all be
| better off. (I say this as a homeowner btw)
| nradov wrote:
| A real estate investment is not a living expense. Home
| maintenance is covered by other items in the CPI basket. I
| assume you've never read through the list? It's quite
| extensive.
| onlyrealcuzzo wrote:
| You don't need to purchase a home - but historically - if you
| did - you've been much better off financially.
|
| 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.
| chii wrote:
| > You don't need to purchase a home - but historically - if
| you did - you've been much better off financially.
|
| 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).
| jandrese wrote:
| > 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).
|
| 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.
| onlyrealcuzzo wrote:
| False - investing in shares on margin would get you
| margin called and bankrupt in many time-scales. A house
| can't be margin called (if you can't afford the debt
| service, you can still end up bankrupt).
| TimPC wrote:
| Depends where you're talking about in Canada from 2001 to
| present day the average return of housing has beat the
| stock market. There is also a question of what amounts
| you're investing. Paying down a mortgage is sort of like
| having ever declining rent, but if you're investing in
| the market instead you face ever increasing rent so the
| amount of the investment is different between the two
| scenarios.
|
| 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.
| throw0101a wrote:
| > _You don 't need to purchase a home - but historically -
| if you did - you've been much better off financially._
|
| [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:
|
| * https://www.youtube.com/shorts/L5SAF0SHD1w
| onlyrealcuzzo wrote:
| Real estate is leveraged - often times in the US 33:1.
| Stocks aren't.
|
| 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.
| nradov wrote:
| That's a non sequitur. Investing in real estate can be a
| good financial option for many people, but it's irrelevant
| to the CPI. The Federal Reserve publishes reports on
| household wealth and the home ownership rate if that's what
| you want. Current home ownership rate is 65%, so obviously
| it's within reach for most people. College enrollment
| levels are also near record highs, so while expensive it's
| not out of reach either.
| Dudeman112 wrote:
| >That's an investment, not a living expense.
|
| 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.
| nradov wrote:
| Some people find that renting is better from a QoL
| perspective. Owning is shit if you hate having to deal with
| home maintenance, or travel a lot, or have to move
| frequently for work. Others prefer the stability of owning.
|
| But so what? Nothing in your comment is relevant to
| inflation calculations.
| mymythisisthis wrote:
| https://www.cdc.gov/nchs/data/nvsr/nvsr70/nvsr70-17.pdf
|
| 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?
| formerkrogemp wrote:
| Yes, college enrollment, high school enrollment, and labor
| participation are all down, starting last year. People can't
| afford new houses with a mortgage with rising interest rates.
| Fewer young adults ("Gen Z") are choosing, proportionally, to
| go to college. The plummeting birth rate and the highly
| strict immigration controls as well as our political
| instability have all sent the message to international
| students that they're not wanted here. The system of gaokao
| has been changed recently, so more Chinese parents won't be
| sending their children to the US where they'll be charged
| full tuition plus some. The shortfall in tuition is being
| made up by cutting academic and sports programs. My friends
| who work in college finance expect the plummeting birth rate
| and dropping international enrollment to really hit colleges
| hard in 2025, so you can expect a lot of academic cuts,
| sports cuts, and outright college failures barring massive
| bailouts for the institutions. My college had to cut 3 sports
| teams and 6 majors recently along with tuition.
|
| 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.
| nradov wrote:
| Nursing school enrollment is higher than ever.
|
| https://www.aacnnursing.org/News-Information/Press-
| Releases/...
| formerkrogemp wrote:
| Yeah, let's keep treating nurses, physician assistants,
| and doctors worse than grocery employees. High nursing
| enrollment means squat. Who'd you rather have treating
| your loved ones? The nurses with decades of practical
| experience, or the nursing school graduates who will quit
| after 3 years of burn out and stress? We're starting to
| treat nurses as badly as we do teachers. What do we
| expect? A few fun links for your perusal.
|
| 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...
| BlargMcLarg wrote:
| >Fewer young adults ("Gen Z") are choosing, proportionally,
| to go to college.
|
| 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.
| dragonwriter wrote:
| > the really psychotic aspect of this all is that in the long
| run it will destroy the economy as family formation craters
|
| Starting a family doesn't require owning a home. Vast numbers
| of people start families without ever owning a home.
| 01100011 wrote:
| Anecdotal: my wife and I are waiting for a home to start a
| family. We're not even going to stop contraception until we
| move in. The second we do, we'll start trying.
|
| Fortunately it looks like a 10% correction is all we need,
| and, fingers crossed, it looks to be coming.
| dragonwriter wrote:
| > Anecdotal: my wife and I are waiting for a home to start
| a family
|
| 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.
| ihattendorf wrote:
| What are you going to do if the 10% correction comes after
| prices have increased 15%?
| dont__panic wrote:
| High housing prices == high rental prices == people living in
| smaller spaces == people deciding to have fewer or no kids
| because they don't have the space (or money).
|
| 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.
| lupire wrote:
| How big was the house your grandmother lived in with 5
| siblings? Less than 1500sqft
|
| Houses are something like more than double the size they
| were just 40 years ago, and families are smaller.
| dont__panic wrote:
| Oh, it's definitely possible to raise a large family with
| small square footage. My grandparents raised my father in
| a 3 bedroom house that can't be more than 1500 square
| feet. And my dad has 6 siblings!
|
| 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.
| s1artibartfast wrote:
| Yeah I think you can't ignore the last part about
| expectations. I think younger Generations are just less
| willing to compromise on lifestyle to have children. The
| social institutions that made it much more attractive are
| crumbling. One obvious one of the churches, and the other
| is local community. It's one thing to want to have kids
| when all of your friends are doing it and you live
| together and can raise them together. Many of these
| communities are going away
| leoedin wrote:
| The point isn't that you can't start a family without owning
| a home (obviously that's untrue) but that many people won't
| want to start a family while living in the relative
| instability of rented accommodation. That's almost certainly
| true - I definitely had buying a home as a pre-requisite to
| starting a family (and I don't regret that decision). There's
| always going to be some babies, but it's the societal level
| fertility rate that will drop.
|
| 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.
| bell-cot wrote:
| I think this is far more situational. ~20 years ago, the
| passably well-to-do apartment complex I was living in was
| (in some sections) absolutely _crawling_ with children.
| Many of the units had sliding glass doors opening onto nice
| courtyards, it was a block or two off the main roads in a
| decent residential neighborhood, and there was a city park
| half a block away. If your unit fronted on one of those
| courtyards, you either liked the "all day, every day"
| noises of kids playing (and shrieking a fair amount), or
| else you moved.
|
| 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.
| chii wrote:
| > won't want to start a family while living in the relative
| instability of rented accommodation
|
| 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).
| em-bee wrote:
| in germany and austria time limited renting contracts are
| illegal. renting is always month to month, but landlords
| have no rights to evict anyone ever unless they do damage
| to the property or fail to pay their rent for at least a
| few months, and they still may have to sue to actually
| make the eviction stick. the only exception is landlords
| who only rent out a single home, and they can prove that
| they now need that home for themselves (or for their
| kids). these are not common though. most landlords are
| agencies that manage multiple properties.
|
| 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.
| ChuckNorris89 wrote:
| _> in germany and austria time limited renting contracts
| are illegal_
|
| 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.
| em-bee wrote:
| oh, sorry, i just looked it up. you are right. austria
| does allow time limited contracts. 3 years is the
| minimum, however. you can't have shorter time limits.
| also after the first year the tenant may terminate the
| contract any time (with 3 months advance notice), the
| landlord may not. and there is another interesting
| detail: time-limited contracts must be 25% less than
| comparable unlimited contracts. this however is rarely
| enforced unless the tenant notices. (they can get back
| overpaid rent for up to 10 years).
|
| 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.
| ChuckNorris89 wrote:
| Yeah, but finding a decent place to rent in Germany is
| the real problem.
|
| 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.
| em-bee wrote:
| but that's a problem everywhere that doesn't build enough
| new units to meet the demand. and i don't think it is any
| easier to buy a place. nor is it any easier to find a
| place to rent in the US.
| ChuckNorris89 wrote:
| Sorry but no, it _IS_ much easier to find a place to rent
| in the US.
|
| 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.
| carlisle_ wrote:
| That's just a mortgage with extra steps...
| chii wrote:
| not the same - a mortgage require a deposit. Renting will
| be cheaper, because a deposit is basically a capital cost
| (that people comparing renting and buying don't take into
| account).
| lazide wrote:
| A common problem with rent control (can't raise rent to
| match market) in cities is the landlord stops doing
| maintenance or starts moving in folks who are dangerous
| or threatening to tenants to get them to leave.
| bombcar wrote:
| > The point isn't that you can't start a family without
| owning a home (obviously that's untrue) but that many
| people won't want to start a family while living in the
| relative instability of rented accommodation.
|
| 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.
| BlargMcLarg wrote:
| Most developed countries took a significant hit to
| fertility rates around 1970-1980 and stayed below
| replacement rate since then, fluctuating or dropping
| further down but never recovering well above replacement
| rate. I can think of a few things happening during those
| years, but "housing" wouldn't be a global one.
| lumost wrote:
| Having started a family recently, there is a strong instinct
| to move towards more secure foundations. While you may have
| had a lot of flexibility to scrimp expenses without children,
| you can't just up and move to cheaper acommodations in a less
| desirable school district/neighborhood/or longer commute.
|
| 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.
| onlyrealcuzzo wrote:
| Source?
|
| 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.
| dragonwriter wrote:
| Majority homeownership is a post-1950s thing in the US,
| corresponding with the beginning of the big drop in the
| fertility rate; the (temporary) late 1980s surge in
| homeownership corresponded to the start of the big drop in
| family formation; the recent drop is from an extremely
| short term spike and is still above where the late-1980s
| surge started.
|
| 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.
| faangiq wrote:
| This was all part of the plan to build a nation of mindless
| debt slaves. It was very effective.
| mtoner23 wrote:
| the 30 year mortgage was one of the greatest financial
| innovations of our time. Allowing anyone to pay off 2022
| costs in 2052 dollars. I understanding hating credit card
| debt, buy now pay later, and other horrible "financial
| engineering" but the 30 year mortgage is overall a great
| thing for everyday people.
| FooBarBizBazz wrote:
| It's actually true, in a way.
|
| 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.
| lordnacho wrote:
| The young men -> instability theory is one I've heard
| several times. It makes sense, but is there evidence or
| some sort of seminal article about it?
| BlargMcLarg wrote:
| In GP's context, no. The basics of the theory is a lack
| of incentives for young men to play the game, which leads
| to either proactive destruction or passive destruction.
| War usually leads to a surplus of women and a lack of
| male competition in any other area (jobs, land, wealth,
| opportunity), incentivizing men to play according to the
| social contract rather than being violent or giving up.
| In fact, some would say 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).
|
| 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.
| FooBarBizBazz wrote:
| I don't disagree with your points, but I think
| lordnacho's question is a reasonable one. So, in a
| sibling to your post, I've included one link.
|
| 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".
| FooBarBizBazz wrote:
| This appears to be a 2016 column from a local paper, but
| it includes a number of interesting quotes from the time
| period:
|
| 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.
| juanani wrote:
| mschuster91 wrote:
| > home prices have been absolutely bonkers, with two massive
| bubbles (we are in one right now)
|
| 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.
| dont__panic wrote:
| Interestingly I wonder the exact opposite -- can urban
| housing really justify these insane valuations when US cities
| have next to no appeal to me?
|
| 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.
| thatfrenchguy wrote:
| > next to no appeal to me
|
| 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?
| dont__panic wrote:
| Different people have different preferences, for sure. I
| used to feel that way when I lived in a small town with
| no amenities. But now I'd hate to move back to a major US
| city, for the reasons I list above.
|
| 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.
| jimmydorry wrote:
| What job prospects would your kids have, and would it
| even have been possible for you to start your career if
| you lived in the area you are planning to move to for the
| critical years (high school, university, first few years
| entering your field, etc.)?
|
| 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.
| dont__panic wrote:
| Depends a lot on comfort with remote work, especially
| when onboarding college grads. I'd say time will tell how
| society deals with that.
|
| 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.
| thatfrenchguy wrote:
| > 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
|
| 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.
| ghaff wrote:
| I'd just note that there is a huge amount of territory
| between middle of nowhere and Manhattan.
|
| 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.
| coding123 wrote:
| Programming jobs that are remote. I personally predict
| building homes will become a thing - as we reach 600k
| typical home sales level. We will find people building
| homes for 200k and selling them for 400k profit. The math
| is starting to make programming jobs not attractive to me
| at least. Do 1 per year.
| jimmydorry wrote:
| Perhaps it will change in the future, but entering the
| field as a remote-only is an up-hill battle. Especially
| without contacts or experience. Not to mention that the
| bare necessity, a good and stable internet connection, is
| not really a thing yet. Perhaps StarLink will change
| that... but that's yet to be seen.
|
| 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.
| bradlys wrote:
| I think people here have a different definitions of rural
| btw.
|
| 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".
| wonderwonder wrote:
| A huge number of tech focused jobs are remote first
| currently. Plus just because you grow up in the middle of
| no where what is preventing you from going to college
| somewhere else and even settling there? I see no reason
| why being a child in a rural area would limit you from
| college onwards provided you graduated highschool with a
| decent gpa.
| jimmydorry wrote:
| I addressed this in the second part of my post:
|
| >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.
| s1artibartfast wrote:
| I think the impact of rural jobs are largely irrelevant
| if you think your kids will be high skill workers.
|
| 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.
| [deleted]
| mupuff1234 wrote:
| Housing prices are affected by monetary and psychological
| aspects just like the stock market and inflation are.
|
| If people stop believing housing is a good investment then
| prices will fall.
| mschuster91 wrote:
| > 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.
| mupuff1234 wrote:
| The population hasn't increased much (or maybe at all) in
| the last 2 years yet prices have sky rocketed - why is
| that?
| digisign wrote:
| Inflation manufactured by the FED to prevent an economic
| collapse.
| jandrese wrote:
| Capitalism.
|
| 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.
| hattmall wrote:
| Is this actually happening in Europe? The US is the exact
| opposite. It's rather trivial to improve rural areas and
| housing costs are outpacing urban areas at least in
| percentage increases. Most rural areas still have access to
| all the basics that urban areas provide and are only a couple
| hours drive from major urban centers. There's no public
| transport but no one cares about that in the US. Even in the
| largest cities it is generally lacking. Highspeed internet is
| widely available with even more being deployed currently.
| Pretty much everyone is getting fiber in the next 3 years and
| 5g is already in most areas. Only the extreme rural areas
| lack connectivity and then there is starlink.
| BlargMcLarg wrote:
| It's similar in Europe. You need extreme rural conditions
| to be more than 30 minutes away from anything. Public
| transport is a mess in most rural places, with busses
| arriving maybe once an hour (two hours if you're unlucky)
| at bus stops in 5-50 minute walking distance.
|
| 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.
| bombcar wrote:
| People define "rural" vastly differently - most "rural"
| areas in the USA are actually peppered with small towns
| (between 10 and 10k residents) which can be covered by high
| speed internet and even effective public transportation if
| desired - in a small enough town that can just be a guy
| with a van hired by the township.
|
| 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.
| coding123 wrote:
| Rural for me is 10 acre plots - can't see your neighbor
| too much.
|
| Rural for others is 40 acre plots. For some it's
| 400-1000.
| bombcar wrote:
| Heh I feel most people think of "small town America" when
| they think rural, which often includes almost all of the
| midwest outside of Chicago.
| ghaff wrote:
| Is it your contention that the net migration out of many US
| urban centers that was going on through about the 1990s can
| never happen again? In spite of the fact that it's probably
| possible to do more things remotely than it was back then?
|
| 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.
| bitxbitxbitcoin wrote:
| The urban flight to the rural has just as many issues pushing
| it. Starlink also makes rural life more appealing for some
| even with all the other rural issues.
| mschuster91 wrote:
| That only fixes the Internet part, but not the rest of the
| infrastructure issues which need a lot of investment to
| break the vicious cycle of neglected infrastructure, people
| moving and the tax base to fund the maintenance of the
| infrastructure eroding as a consequence.
| ghaff wrote:
| Starlink is a real gamechanger. My dad's house in Maine a
| little ways from a small city had 1Mbps "broadband." Houses
| further down the road had nothing wired and all the Plan Bs
| (conventional satellite/hotspot) were lousy options. While
| Starlink isn't 100% reliable I could actually work from
| there if I wanted to.
| tjr225 wrote:
| Could you? I have been remote for about 4 years and I
| have difficulty doing my job if my internet goes out for
| even an hour during my working time.
|
| 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.
| 0xffff2 wrote:
| I have been using Starlink as my only internet since I
| got it about 6 months ago (working fully remote since
| COVID). It isn't flawless, but it's substantially more
| reliable than Comcast cable ever was in the various
| apartments I lived in when I was in the Bay Area.
|
| >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.
| ghaff wrote:
| >Could you?
|
| 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.
| bombcar wrote:
| Starling reliability is usually the "it goes down for a
| few minutes" type of failures, vs the "it's down for the
| day" you get (more rarely) with wired.
|
| 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.
| ghaff wrote:
| I've definitely seen Starlink go down for a few hours at
| my brother's place a couple times when I've been up
| there. At home, I've had longer outages with Comcast but
| usually it's more like going briefly in and out over the
| course of the day. It's better than it was and it's
| pretty much good enough as far as I'm concerned.
| Supermancho wrote:
| > Isn't the definition of a bubble that it has the capability
| to pop and then eventually pops?
|
| 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.
| kasey_junk wrote:
| The Case Shiller index shows affordability was similar in the
| early 50s to now, that was the heart of the baby boom so I
| think we can predict that won't be the reason people don't
| start families.
|
| 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.
| notfbi wrote:
| In the early 80s with high inflation and therefore high
| mortgage rates, the first years of mortgage payments would be
| a relatively high percentage of income: it's very front-
| loaded. However, the debt owed quickly gets deflated away, so
| over the span of 25 years you're actually paying a much lower
| percentage of your real income. To take it to the extreme, if
| inflation was approaching infinity, and mortgage rates were
| 2% + inflation, your first payment would be 99.9% of the
| value of the loan, and all subsequent payments would be
| essentially 0% of your nominal income. Add to that fact that
| a downpayment went a lot further (if you saved to 50% of your
| median income, that was 20% down payment of median house),
| and affordability back even in the worst of the early 80s,
| while not great, was better than now.
| mushbino wrote:
| Back when it was normal to buy a house and support a family
| on a single income? Nearly impossible now. Sounds like there
| are some serious flaws with that index.
| User23 wrote:
| Also while I can't find internet sources, from talking to
| old people I get the impression most Americans had 15 year
| mortgages back the.
| bombcar wrote:
| They still exist, 10, 15, 20, 25?, 30 years are all
| available.
|
| 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.
| User23 wrote:
| The point is not their existence, it's that the Case
| report is even more of an apples to oranges comparison.
| Imagine a time when for the same share of your income you
| could pay off the same house in half the time.
|
| > 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.
| endisneigh wrote:
| You mean when women were generally discouraged from getting
| jobs people were paid more? What a shocker.
| Robotbeat wrote:
| Home affordability is same now only because now you have two
| incomes, and no one to raise the kids.
| shepardrtc wrote:
| > It's basically not true that housing costs are
| categorically different than any other time.
|
| Are you a realtor?
| jjoonathan wrote:
| I'm getting "don't think about the price, just think about
| the monthly payment!" vibes from this post, so if not real
| estate then definitely some kind of sales.
| jjoonathan wrote:
| The people in charge have houses and want house prices to go
| up. That's the beginning, middle, and end of the thinking.
| pirate787 wrote:
| The Realtor and homebuilder lobbies are part of the thinking,
| too.
| CincinnatiMan wrote:
| I don't think it's that simple. Maybe if someone has lots and
| lots of investment homes, they may think that way, but
| someone owning a single home shouldn't be excited about its
| price inflating--it's not like you can sell it and reap the
| profits, because you'll just be buying another similarly
| inflated house.
| adam_arthur wrote:
| You can do a cash out refi and invest into other higher
| yielding cashflowing assets. People do this all the time
| for e.g. renovations, additions etc
| josefresco wrote:
| I live in a popular vacation destination. The locals didn't
| panic when wealthy multiple-home owners started buying up
| houses because ... their property values were increasing! Now
| local business can't find workers, towns can't find employees
| all because housing is out of reach for the working and
| lower-middle class. Like boiling a frog, most people won't
| care until it's too late.
| 908B64B197 wrote:
| > towns can't find employees all because housing is out of
| reach for the working and lower-middle class.
|
| Why not simply increase the supply?
| 1270018080 wrote:
| That's always the answer. For some reason it's makes some
| people on here angry, but the only long term viable
| solution to expensive housing is to end NIMBYism and
| draconian zoning laws. Anything else is a short-term
| half-measure, including affordable housing, rent
| controls, etc.
|
| If you want to actually solve the housing crisis, you
| just have to build more housing. It really is that
| simple.
| lalaland1125 wrote:
| > For some reason it's makes some people on here angry
|
| 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
| Jasper_ wrote:
| The supply was fine before multi-home owners and property
| management companies took up most of it and jacked up the
| prices. Increasing the supply would only increase the
| wealth of the homeowners, it won't lower prices.
|
| 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.
| jsmith45 wrote:
| Be careful with vacancy numbers. Some sources seem to
| include houses that should not be considered part of the
| housing supply.
|
| 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.)
| 2fast4you wrote:
| I think all of those cases should be reported as
| vacancies. Those are shelters going unused, that other
| people could be using. And I think they're relevant to
| the current discussion because those unused homes are
| taking up the extra supply, increasing price
| tayne wrote:
| I do real estate for a living and this opinion is like a
| zombie that never dies no matter how many times it is
| proven wrong.
|
| 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.
| Jasper_ wrote:
| There are luxury condos right where I live that are sold
| by a property management company. They are unoccupied,
| and have been unoccupied for months. The prices have not
| gone down.
|
| 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.
| Spivak wrote:
| Months is way too short a timeline to say anything. There
| is no market force that says these houses must sell right
| now today and so _like literally every other asset_
| they're being held until in the expectation that offers
| will come in that meet the asking price.
| NumberWangMan wrote:
| Respectfully, this doesn't prove that the law of supply
| and demand no longer applies. Any individual seller may
| choose not to decrease their prices -- but if they do it
| long enough, they run out of money and are forced to
| sell.
|
| 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.
| jkmcf wrote:
| Some places have tax breaks for unoccupied property
| rentals. Instead of lowering prices they leave them high
| and break even on the losses (or close enough such that
| they weather the short term until demand at their
| preferred price is reached)
| 908B64B197 wrote:
| What are the odds these are used to park (questionably
| acquired) assets by wealthy foreigners?
| jjoonathan wrote:
| Nice try.
|
| 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.
| tayne wrote:
| Again, landlords aren't a big enough group or coordinated
| enough to do anything. There's no landlord lobby.
| Homeowners are a different story. It's them who stop us
| from building more. But yea, it's just the market and
| there's no conspiracy and landlords are the last people
| to blame. Your comment on my cognitive abilities is a
| petty insult and is not allowed on this platform.
| satokema wrote:
| "You don't need a formal conspiracy when interests
| converge."
|
| 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.
| 908B64B197 wrote:
| > 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.
|
| Where?
| nostrademons wrote:
| But eventually the vacant apartments will get rented out
| because they're costing their owners money (in taxes,
| mortgages, maintenance) and not bringing any in, and you
| can't spend more than you make forever.
|
| 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.
| tmnvix wrote:
| > But eventually the vacant apartments will get rented
| out because they're costing their owners money
|
| 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.
| Inhibit wrote:
| Except that frogs, as (all? not a biologist) amphibians,
| have very good sensitivity to external temperature. Unlike
| humans.
| seanmcdirmid wrote:
| It is just an expression. Frogs are actually smart enough
| to jump out of a gradually heated-to-boiling pot of
| water.
| oh_sigh wrote:
| I'm sure if they just paid a little bit more they would
| attract people to drive into the town from the assuredly
| cheaper nearby towns.
| FuriouslyAdrift wrote:
| That's called urban sprawl...
| kixiQu wrote:
| It's useful to see what happens when this isn't possible:
|
| https://www.outsideonline.com/culture/essays-culture/how-
| to-...
| ta988 wrote:
| To which you add, people that buy houses want to be able to
| sell making a large benefit. So you profit from using it (by
| living in it or renting it) and sell it for more than you did
| put into it...
| ClumsyPilot wrote:
| Do they plan to live in a tent after they 'used' the house
| and sold it? Because if they plan to buy a new house to
| replace the one they sold, they haven't made any money. And
| if they want to upgrade, they lost money and the price
| difference will have increased.
|
| 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.
| marcosdumay wrote:
| People that had money 3 or 4 decades ago tend to own a
| few houses and get some income from renting.
|
| Also, older people think more about downsizing than about
| upsizing their homes.
| lupire wrote:
| Do they also hate their children?
| wonderwonder wrote:
| Nope, I would bet a lot of these people had the means to
| gift their kids a nice down payment for their first home.
| That's why the best indicator of where you end up
| financially is where you start.
| ClumsyPilot wrote:
| downpayment doesn't get you out of the hole -> you are
| still on the hook for decades, to keep sinking the
| majority of your earnings into that house. That's money
| lost to productive economy, and money lost to you.
| jjoonathan wrote:
| They want their children to rule in hell rather than
| serve in heaven. Not the wisest deal ever struck.
| antisthenes wrote:
| Well, if we're doing pseudo-philosophical soundbites,
| then _hell is other people_.
|
| Better to rule than be ruled. At the very least it gives
| you a bigger safety net when you fall out of power.
| vkou wrote:
| They can either downsize towards the end of their life,
| move to a less desirable housing market (because there
| are no jobs in it), or take a loan against their home.
| ClumsyPilot wrote:
| Normally people optimise for their life, not for their
| eventual few years of retirement and death.
| notfbi wrote:
| It's hard to connect interest rates to house prices
| historically, but I think that's because there's two scenarios
| going on, with some substitutability, but a general move to the
| latter over the last 50-30 years due to zoning and planning
| changes and urbanization.
|
| 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.
| lr4444lr wrote:
| Naive question: why couldn't the government use something like a
| 12 month moving average? That way we'd keep the variable, but
| limit the weight of its volatility.
| asperous wrote:
| You can do this across the whole index if you want already, and
| many sources do report annual changes only:
| https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
|
| 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.
| nikanj wrote:
| Rent goes from $1400 to $1850, but inflation only went up by a
| few fractions of a percent? Downpayment needed for a family home
| went from $10k to $75k, and inflation was under 2%?
|
| The numbers posted are wholly disconnected from the reality in
| our wallets.
| alephnan wrote:
| Loughla wrote:
| Your statement is actually addressed in tfa, in the first
| couple of paragraphs (now, it's in the context of a switch made
| to the index in 1983, but I think it's just as relevant today):
|
| >This methodological innovation understandably sets off alarm
| bells among people who are predisposed to distrust the
| government.
| gilbetron wrote:
| Did you read the article? There's a paper that recreated what
| the inflation rate would have been with the old method, and it
| tracks the new method closely, but just has more volatility.
| glowingly wrote:
| While I do like the latter, a house is a fairly rare purchase
| in one's life. Admittedly, a very major, rare purchase. But
| typically a rare one nonetheless. My weekly grocery runs are
| more indicative of CPI to me.
| bobthehomeless wrote:
| rarely do people buy houses (for living) with cash.
| boredumb wrote:
| Sure, but housing prices will directly effect the price
| someone can buy and offer it to be rented out which has a
| huge monthly effect on a large portion of the population.
| s1artibartfast wrote:
| Yes, which is why they include rent and the rental value
| for purchased homes
| lupire wrote:
| Rare for you an individual, but on overall common.
|
| Catastrophic medical expenses and college are similar, and
| inflation in those is very important overall.
| KptMarchewa wrote:
| Rare one, but mortgage payments can impact your life even
| some decades later.
| hnthrowaway0315 wrote:
| I think one should have one's own inflation index. Basically I'd
| layout the expenses (food, utility, mortgage, child day care,
| etc.) and go from there. Some expenses inflates every year
| (food/utility), some are fixed for 5 years and then maybe jump
| up/down (mortgage, depending if Fed is cutting or hiking rates).
| dannyz wrote:
| Statistics canada provides a service similar to this
| https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
| sokoloff wrote:
| That sounds like a _budget_ , which is indeed a good thing to
| have but answers very different questions from a broad-based
| inflation calculation.
| chii wrote:
| if they normalized the budget such that extra things not
| purchased in previous years is not taken into account, it
| could be used as a personal inflation measure. Normalizing
| the budget means you remove any life-style creep that gets
| in.
|
| This way, you can look at your salary, and determine whether
| you're gaining income above your own inflation, or not.
| sokoloff wrote:
| Normalizing the budget that way would seem to be incredibly
| difficult at a personal level.
|
| 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?
| axg11 wrote:
| This would be a cool idea for a service - I would pay for it.
| Privacy issues aside, it's a shame that transaction data
| doesn't include itemized information (e.g. grocery bills only
| show up as one large charge). I'm sure there are many items I
| regularly purchase that have changed price without me noticing.
| hattmall wrote:
| Technically many stores provide level-3 data with cc
| transactions, which include itemized details, but no idea how
| a consumer would get it. The exchanges give better rates the
| more details the merchant provides, level 3 being the highest
| detail and lowest rates so many of the large merchants
| provide this data. It's one way they avoid paying sign up
| bonuses on gift card purchases.
| notriddle wrote:
| If you want to include shrinkflation, it's going to wind up
| involving a lot of data entry.
| nradov wrote:
| What would I do with that data?
| bobthehomeless wrote:
| criddell wrote:
| Why do you say that? I own a house and it's my favorite place
| to be.
| betaby wrote:
| It's a reference to this
| https://knowyourmeme.com/memes/youll-own-nothing-and-be-
| happ...
| jvsg_ wrote:
| you vill get ze downvotes and be happy
| gilbetron wrote:
| For those that only read the headline, the article is much more
| interesting. There's a paper that recreated what the inflation
| rate would have been with the old method, and it tracks the new
| method closely, but just has more volatility. Plus, "the
| government" didn't take home prices out, they just switched to a
| different approach to tracking them.
| sokoloff wrote:
| I think the "new" (now 39 years old) method is superior
| overall, but I think it's entirely factually correct that they
| took _home prices_ out of the index.
|
| 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.
| lumost wrote:
| I think the methodological flaw here is the assumption that
| nominal housing prices are _elastic_. Housing expenses fell
| over the last ~30 years as interest rates fell, however it 's
| highly unlikely that the reverse will hold true to the same
| tune. If interest rates go to 10%, people will stop trading
| housing rather than take a nominal hit and be under water on
| a mortgage.
|
| 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.
| gedy wrote:
| Many people will, sure. But there's many people who either
| need or want to sell and that puts pressure on prices. Seen
| this many times in past decades in California at least.
| sokoloff wrote:
| I think house sale prices are well understood to be sticky.
| (Sellers _really hate_ the thought of bringing a check to
| the closing, so when prices are such that their equity
| after commission goes negative, housing listings and sales
| do indeed slow down.)
|
| 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.
| TheCoelacanth wrote:
| The headline is technically correct, but incredibly
| misleading to people who don't read past the headline.
| mywittyname wrote:
| The new methodology is clearly the better one.
|
| 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.
| em500 wrote:
| How do you speak clearly and plainly about these topics?
| It's factually true housing prices aren't included in the
| CPI, but it's not easy to explain why and how replacing it
| with the somewhat abstract notion of _housing services_ ,
| estimated by _owner equivalent rent_ is conceptually
| superior.
| throw0101a wrote:
| > _How do you speak clearly and plainly about these
| topics?_
|
| 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...
| mywittyname wrote:
| I'd say, "the cost to house ones family is included in
| CPI calculations." That's _clear_ and accurate.
|
| 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.
| randomdata wrote:
| I would say the easiest way to explain it is, as implied
| by the "C", that CPI is intended to track consumption.
| Houses aren't normally consumed. Your house a decade from
| now is expected to be, more or less, the same house you
| purchased originally. You expect, more or less, to be
| able to sell it for at least as much as you paid for it
| originally. Whereas a consumable good, like food, is used
| up once you eat it and then you have to buy it again.
| Housing services are more like food. They are consumed.
| You use it up, to some meaning of use, and then you have
| to eventually buy it again to use it again.
|
| 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.
| throwaway_1928 wrote:
| > Houses aren't normally consumed.
|
| 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.
| sokoloff wrote:
| The monthly/annual use of a space to shelter is the
| service that is being consumed. The perpetual right of
| ownership of that space to shelter is not being consumed.
|
| 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.
| throw0101a wrote:
| > _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._
|
| 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...
| Rury wrote:
| >they question if CPI is the best metric for measuring
| inflation, not whether or not durable assets should be
| considered consumables
|
| 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?
| sokoloff wrote:
| An oil well, a farm, an ounce of gold, and a share of
| $AAPL are also durable assets and purchasable things.
| Should they be included in CPI as well?
| [deleted]
| hammock wrote:
| Shadowstats.com has been tracking inflation with old methods
| for a long time
| staticman2 wrote:
| No it hasn't. The numbers on that site are fiction.
| jjoonathan wrote:
| They look like adding a constant to the official numbers,
| lol.
|
| 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.
| mywittyname wrote:
| > There is room for using one indicator over another for
| any given application.
|
| 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.
| binarybits wrote:
| OP author here. I wrote a shadowstats debunker back in
| November:
|
| 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.
| throw0101a wrote:
| Further, their newsletter has been at the same annual price
| for >10 years. If everything costs more they must be
| running a charity, or finding "efficiencies" every year, in
| order to keep the price the same.
| hammock wrote:
| Thanks for writing that up. It was always pretty clear the
| Shadowstats methodology was the simple application of some
| constant factor, and Shadowstats was more an instrument to
| talk about how the government measures inflation (and
| changes its own methodology) than anything else.
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