tag:blogger.com,1999:blog-11719208.post112948870350550187..comments2023-11-05T04:36:14.223-08:00Comments on The Mess That Greenspan Made: Home Ownership Costs and Core InflationTimhttp://www.blogger.com/profile/16530974968126497397noreply@blogger.comBlogger21125tag:blogger.com,1999:blog-11719208.post-10769137087023325652009-01-13T00:28:00.000-08:002009-01-13T00:28:00.000-08:00We can’t really say that we are completely out of ...We can’t really say that we are completely out of the woods yet. But then also you all did a nice job. Keep it up!<BR/><BR/>========================<BR/><BR/>napster<BR/><BR/>Homes in Albany, GA at www.BestInAlbany.com: is the site to begin your search for real estate, buying or selling a home or property.<BR/><BR/><A HREF="http://www.bestinalbany.com" REL="nofollow">Homes for sale and homes for rent in Albany, GA</A>shahttps://www.blogger.com/profile/10377273101445315900noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-20371008822238142662007-11-09T13:00:00.000-08:002007-11-09T13:00:00.000-08:00Your fanciful story confuses inflation with prices...Your fanciful story confuses inflation with prices.<BR/><BR/>No where in your fanciful story telling do you mention production of hard goods. Prices reflect clearing of what is available and wanted for sale with how much cash and credit exists in the hands of buyers.<BR/><BR/><BR/>CPI gives anyone a meaningless measure. There is no such thing as a Monolithic Price, one number, that captures all price data -- only what bogus economists tell you. <BR/><BR/><BR/>Inflation happens when those in power (central bank) increase internal trade through these: increased number of opened contracts, increased rate of cash payment transaction settlement.<BR/><BR/>The rate of inflation is the rate of accretion of new cash (notes and coins) into circulation plus accretion of new consumer credit (30 day balances). <BR/><BR/>If you want to delude yourself using a fake analytical framework -- CPI -- you can tell any story that you want to tell, simply by changing what want included into the CPI.Pierhttps://www.blogger.com/profile/02332126355227475830noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1132193097774239532005-11-16T18:04:00.000-08:002005-11-16T18:04:00.000-08:00john, The Alliance Capitol article is interesting ...john, <BR/><BR/>The Alliance Capitol article is interesting - there's also lot of historical info at the Fed websites.<BR/><BR/>I didn't know about the reindexing issue in 1997 - interesting as well.Timhttps://www.blogger.com/profile/16530974968126497397noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1132156954204476122005-11-16T08:02:00.000-08:002005-11-16T08:02:00.000-08:00A great piece! Anyone interested in this should a...A great piece! Anyone interested in this should also take a peek at http://www.alliancecapital.com/DomesticPortal/StoryPage.aspx?nid=5341&cid=25051. <BR/><BR/>One additional point made there is that in 1997 the BLS abandoned its effort to reindex the owners equivalent rent using real homeowner data... note that in your chart that is precisely when OFHEO home prices rocket out of the range of the other two variables.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129733854098140192005-10-19T07:57:00.000-07:002005-10-19T07:57:00.000-07:00David,I intend to come back to this subject again ...David,<BR/><BR/>I intend to come back to this subject again soon. On your question:<BR/><BR/>"I wonder what the effects of Greenspan's cleaning up his mess of overly-loose money supply is going to have on your "inflation rate" for home ownership going forward now that interest rates are rising?"<BR/><BR/>I think I'll be able to answer that after the next piece on this subject which will include historical home prices, mortgage rates, and property taxes to calculate real housing costs over time. I've already seen 30-year mortgage rates plotted on the above chart (easy to do and very interesting to look at), but creating a sort of "home debt service" inflation component based on the other factors is a bit more difficult.Timhttps://www.blogger.com/profile/16530974968126497397noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129657184566762352005-10-18T10:39:00.000-07:002005-10-18T10:39:00.000-07:00Tim,Great work. Always loved your blog. I see th...Tim,<BR/><BR/>Great work. Always loved your blog. I see things a bit differently. There has been a huge bandwagon of bloggers taking stabs at the mainstream media regarding their stance on the core rate. I'm taking a position that the core rate is equally as important as the headline AND your new inflation indicator. All three components should be viewed equally as they tell an important story. Energy prices are almost collapsing from their highs a few weeks ago. This will have a noticable effect on the headline. What the core tells us is that what inflation is there, hasn't crept into other elements of the economy. So, if energy price fall, then the headline should fall as well, leaving the core to inch up at a normal moderate pace. From there, I wonder what the effects of Greenspan's cleaning up his mess of overly-loose money supply is going to have on your "inflation rate" for home ownership going forward now that interest rates are rising? Perhaps your analysis can answer that question going forward looking at the historical perspectives.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129643081087620072005-10-18T06:44:00.000-07:002005-10-18T06:44:00.000-07:00I am no economist and my memory is a bit hazy, but...I am no economist and my memory is a bit hazy, but wasn't the elimination of the mortgage deduction being considered "back in the day" along with the elimination of the deduction of consumer credit interest?<BR/><BR/>From where I am sitting, economic conditions have been created to deliberately lead to the eventual elimination of that particular deduction. When that happens, to my way of thinking, there will be disincentive to incur "homeownership." When you combine the loss of that deduction along with higher property taxes, how will the "over-extended" American consumer fare at that point?<BR/><BR/>Just really curious,<BR/><BR/>Truewater2Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129639345715834442005-10-18T05:42:00.000-07:002005-10-18T05:42:00.000-07:00Tim:Yeah, I agree with that. Adjusting for change...Tim:<BR/><BR/>Yeah, I agree with that. Adjusting for changes in the way stats are calculated when comparing different time periods is always tricky and a matter of contention. In the end you need someone who is a fair and impartial analyst without an axe to grind or product to sell. There don't seem to be a lot of those types of analysts on Wall Street or in the financial press. Maybe government departments are taking the same direction now, which seems like a great shame to me.Worker 17https://www.blogger.com/profile/11311854874493560068noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129596939186643212005-10-17T17:55:00.000-07:002005-10-17T17:55:00.000-07:00ignorant investor,I don't think you'll ever get an...ignorant investor,<BR/><BR/>I don't think you'll ever get an inflation index that pleases everyone - it just bugs me when we say, "Look how bad inflation was back then 1980, and it's so low now", when, in the case of housing, we have dramatically changed the way inflation is calculated.<BR/><BR/>l'emmerdeur,<BR/><BR/>You have a good point - in the long run, there will be a housing glut and rental supply will outstrip demand. But in the short run (if this next time is anything like the early 1990s in Southern California), the banks will be overwhelmed with foreclosed properties and they will sit there for a year or more, become vandalized, and then fixed up and sold. During the short run, you may see rental prices spike because of lots of new renters, and lots of foreclosed property that the banks haven't gotten around to dealing with.Timhttps://www.blogger.com/profile/16530974968126497397noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129586579805763172005-10-17T15:02:00.000-07:002005-10-17T15:02:00.000-07:00I disagree with the notion that rents will rise as...I disagree with the notion that rents will rise as demand increases. The massive inventory of unoccupied properties, those that have spent their entire existence changing hands in this pyramid scheme, will certainly end up being<BR/><BR/>1. Foreclosed by banks, and then<BR/><BR/>2. Sold en masse to RE management firms at fire sale prices. These firms will then<BR/><BR/>3. Convert them into rental buildings.L'Emmerdeurhttps://www.blogger.com/profile/03004040303058104490noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129580980770425012005-10-17T13:29:00.000-07:002005-10-17T13:29:00.000-07:00The problem with inflation measurements seem to co...The problem with inflation measurements seem to come from the rapid rise in some components while others have stayed flat. Yes, oil is way up. Home prices are way up. But prices for cars, apartments, computers, wages, and the crickets I buy for my kid's pet frog have been pretty stable. <BR/><BR/>Is that a distinction worth drawing, or should we just ignore it altogether?Worker 17https://www.blogger.com/profile/11311854874493560068noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129578952266353822005-10-17T12:55:00.000-07:002005-10-17T12:55:00.000-07:00YES! healthcare i was reading was also underepres...YES! healthcare i was reading was also underepresented in the CPI. I think I read healthcare was actually 15% of people's expenses, not what the allocation the CPI gives. so the numbers are even higher! we might have had negative interest rates of 3-5%.john_law_the_IIhttps://www.blogger.com/profile/14231101798981208231noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129574806792513302005-10-17T11:46:00.000-07:002005-10-17T11:46:00.000-07:00Tim, good point. The Asian central banks want to ...Tim, good point. The Asian central banks want to keep their countries selling their goods in the U.S., so they'll do whatever it takes to keep U.S. interest rates artificially low.<BR/><BR/>Another thing that might be worth looking at in terms of CPI calculations is healthcare. People are paying ever more for health insurance, prescriptions, deductibles, etc. I would be surprised if the deviation between "core inflation" and real inflation is not even greater for healthcare than for housing.<BR/><BR/>BTW, on CNBC today, they were talking about the Bush tax commission's proposal to cap the mortgages eligible for the interest deduction at 350K.<BR/><BR/>This, of course is just part of the tax reform game. The repos come in and eliminate deductions in exchange for lowering rates, then the demos come in and raise rates back up, without restoring the deductions. <BR/><BR/>It doesn't take a weatherman to tell you which way the wind is blowing . . .Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129572876885400912005-10-17T11:14:00.000-07:002005-10-17T11:14:00.000-07:00fantastic post, I was hoping for awhile that someo...fantastic post, I was hoping for awhile that someone would do thisjohn_law_the_IIhttps://www.blogger.com/profile/14231101798981208231noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129572161554910532005-10-17T11:02:00.000-07:002005-10-17T11:02:00.000-07:00Awesome post Tim, I was wondering what inflation w...Awesome post Tim, I was wondering what inflation would be calculated correctly and comparable to the 70's. I am shocked we havent seen anyone else calculate this in the general media.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129563714350829432005-10-17T08:41:00.000-07:002005-10-17T08:41:00.000-07:00GRL,I think the long bond question is really a gam...GRL,<BR/><BR/>I think the long bond question is really a game theory question (see Friday's post) - who's got a vested interest in popping the housing bubble? Even if reported inflation was 10 percent, would bond holders "demand" a positive real return, knowing what the consequences would be for the housing market?Timhttps://www.blogger.com/profile/16530974968126497397noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129559802757358052005-10-17T07:36:00.000-07:002005-10-17T07:36:00.000-07:00Barry,As I mentioned in one of the notes, the calc...Barry,<BR/><BR/>As I mentioned in one of the notes, the calculation used before 1983 was more complicated than just using the change in home price, and included mortgage rates and property taxes.<BR/><BR/>Since 30-year mortgage rates have been flat over the last year, I was trying to keep things simple, by showing how owner occupied housing makes up 30 percent of core inflation, but using 13 percent instead of 2.3 percent produces a radically different result.Timhttps://www.blogger.com/profile/16530974968126497397noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129559391028617692005-10-17T07:29:00.000-07:002005-10-17T07:29:00.000-07:00Interesting line of inquiry, GLR. When you look a...Interesting line of inquiry, GLR. When you look at it, low fed funds rates had such a stimulative impact on home prices, and if they were honest enough to include home prices in core inflation, it would mean higher home prices leading to MUCH higher fed funds... another great example of no free lunch.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129558498530701462005-10-17T07:14:00.001-07:002005-10-17T07:14:00.001-07:00One last point: Property taxes have risen dramati...<I>One last point:</I> Property taxes have risen dramatically over the past few years, as states and towns are making up increased costs and lowered Federal disbursements.Ritholtzhttps://www.blogger.com/profile/08608448405502237269noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129558463412480092005-10-17T07:14:00.000-07:002005-10-17T07:14:00.000-07:00Great post.Now, what does that do to the long bond...Great post.<BR/>Now, what does that do to the long bond? To the fed funds?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1129558078221426152005-10-17T07:07:00.000-07:002005-10-17T07:07:00.000-07:00Awesome work Tim.Thanks for doing the heavy liftin...Awesome work Tim.<BR/><BR/>Thanks for doing the heavy lifting.<BR/><BR/>Now, brace yourself for character assassination . . .Ritholtzhttps://www.blogger.com/profile/08608448405502237269noreply@blogger.com