Inflation would be 10 percent per year if house prices were included

Ever wonder what the inflation statistic would be if it included some of the big purchases that people actually make, e.g., houses? A Wall Street economist, Joe Carson, recently wrote a piece on the current inflation situation:

Including house prices in the official consumer inflation statistics would lift the reported figure to roughly 10% and rival the early 1980s. Still, excluding the non-market shelter index from the official price statistics shows consumer price inflation running as hot as it did during the oil price spike of 2008. Both represent the fastest increase since the early 1980s, illustrating the breadth and speed of the current inflation cycle.

Other measures of inflation have already exceeded the reported figures of the early 1980s. Core intermediate prices for materials and supplies, which are part of the monthly producer price report, have jumped over 20%, well above the high readings of the 1980s.

If official government inflation is 6 percent, is it reasonable to say that 4% more would be added if actual house prices were included? From the same piece:

The initial signs of a new inflation cycle appeared in the housing market. In 2020, during the pandemic, house price prices rose 10%, according to the Case-Shiller. That was more than three times faster than the gain of the prior year and the most rapid increase since 2013. Some have argued that high and rising prices are self-correcting as buyers balk at the high prices. Yet, after increasing 10%, house prices posted a 15% increase, and the latest data shows a record 19.5% increase in the past year.

19.5 percent in this one component does seem as though it could translate to 4 percent for prices overall.

House prices in our neighborhood are so high that one homeowner has subleased the backyard to a research facility:


  • “Owners’ Equivalent Rent and Price Stability” (PennMutual): In 1983, the Bureau of Labor Statistics (BLS) made a change to an integral component of inflation indexes. The adoption of owners’ equivalent rent (OER) to estimate shelter costs meant home purchases would no longer be considered a consumption expenditure but instead a capital asset or investment. OER is determined by a monthly survey of consumers who own a primary residence. The survey asks how much consumers would pay to rent instead of own their home. OER represents approximately 25% of the Consumer Price Index and 12% of personal consumption expenditures (PCE). … Why has OER exhibited such stability versus market-based measures of shelter costs? Economists have observed that owner-occupied rental estimates tend to be “sticky” relative to market-based rental costs. Homeowners tend to underestimate rent appreciation during expansionary periods and overestimate it during recessionary periods. … The idea that home purchase costs are not an expenditure but an investment is likely difficult to understand for first-time homebuyers confronted with unaffordable housing options.
  • What if you want to live in your car (on “camping mode”) instead? Tesla prices were up about 10 percent in the past few months and went up another 5 percent today (Reuters)

11 thoughts on “Inflation would be 10 percent per year if house prices were included

    • but it was nice to read this:
      Robert Zimmer, then the president of the University of Chicago, issued a statement strongly reaffirming the university’s commitment to freedom of expression. Dr. Abbot’s popular climate change class remains fully subscribed


  1. Are those photos from your neighborhood taken after the recent imposition of the COVID vaccine mandates?

  2. The CPI (Consumer Price Index) is supposed to be 33% based on housing. So it should take the housing cost increases into account.

    I haven’t noticed the CPI shooting up in previous housing bubbles, but maybe I wasn’t paying attention.

  3. What about staples and food? Consumer prices rose in excess of 10%. Could you still buy $1.99 or $2.99 per pound packages of stakes in Costco? I recall you posted one 2 years back during Trump prosperity.

  4. I guess current administration thinks that consumer basket consists mainly of soda, chips and little debbie cakes, to save the planet both by reducing meat consumption and lifespans.

    • re reducing lifespans:

      Oh the other hand, junk food consumption and Covid will extend the projected implosion of the social security trust fund by a couple of years.

  5. I no longer worry about house prices going through the roof, it is the high accumulated student debt that we should be worried out. The cost of higher education and with it student debt is gong up faster than house prices or inflation.

    • Only suckers accumulate excessive student debt. Smart students go to community college or in-state university, or take advantage of National Guard, Military Reserves or active duty educational opportunities, or employer tuition reimbursement programs, or, like me, federal government student loan forgiveness programs!

      The Biden administration just expanded student loan forgiveness for public-sector employees. While I’ve been employed in an eligible public-sector job for the past 15 years and dutifully paying down my $30K grad school student loan (at 2%), without any expectation of student loan forgiveness, the recent expansion of the student loan forgiveness program for public-sector employees allowed me to apply for student loan forgiveness this month. I just got notice that my application has been accepted, and it looks like I will likely be receiving forgiveness on my $8000 balance and, if I read the recently issued rules correctly, possibly, a cash rebate for as much as $10,000 or more of student loan payments I’ve already made. All this on a $30K federally-subsidized/federally-guaranteed grad school student loan I took out to pay for $5000 in total tuition (which I was easily able to afford on my own). Basically, I arbitraged a $30K loan payable at a fixed 2% interest and invested all the loan proceeds in the stock market for over the past 15 years. I get to keep all the investment gains and don’t have to pay back (most of) the $30K loan.

      Today, I was home at 3:00 pm and I’m taking tomorrow off to enjoy another 3-day weekend!

  6. Peter Schiff covered this very well, on the bullcrap CPI measure:

    “the government does not consider home prices when calculating housing costs. Similarly, by most metrics home rental costs are up about 9% this year, slightly outstripping the overall costs of living. But the government does not consider those numbers either. Instead, they rely exclusively on “Owner’s Equivalent Rent,” a phantom statistic that nobody uses, and which can’t be objectively determined.

    Owner’s Equivalent Rent is derived by asking homeowners how much they would pay to rent a home that would replicate, in terms of size, location, quality and amenities, the homes they already own. Huh? Most homeowners do not have their fingers on the pulse of the rental market, particularly for homes that look just like theirs. Typically homes available for purchase and those available to let are taken from different pools of housing stock. If asked to come up with such a hypothetical, most homeowners would likely just guess.

    Would it surprise you then to know that the owners-equivalent rent statistics have been far, far lower than either home prices or actual rents? In the latest CPI report the Bureau of Labor Statistics estimates year over year increases in Owner’s Equivalent Rent was just 2.3%. How convenient. So as far as the government is concerned, housing costs aren’t really going up that fast as most people think!”

Comments are closed.