Today we had a CPI update from the Bureau of Labor Statistics. Back in November 2024, I predicted that the official number would be 3 percent. (Keep in mind that official CPI does not include the cost of buying and paying ongoing costs for a house, the largest expense for the typical American family.) My reasoning for a persistently high number is that we have “leftover inflation” from union deals struck during raging Bidenflation, from businesses finally adjusting their prices to reflect the new reality, etc. Essentially the wage-price spiral.
Let’s see how I did!
The NYT today says official CPI is at 2.7 percent and 2.9 “core”.
Democrat-sponsored NPR says that my theory is garbage and all of the inflation was created by a single Republican:
Related:
- Can our government generate its own inflation spiral? (2022): Government is nearly half the economy and everything the government pays money for is indexed to inflation. Medicare, military and similar contracts, Social Security, pensions, employee salaries, etc.
Wait, seriously? A 1% rise in clothing prices is now considered inflation? Even the young girl in the background is skeptical of Scott Horsley’s take on this, just look at her expression!
Housing up 4%. Gasoline down 8%. Inflation targeting works.
Phil, even sleepy Joe and Hunter know that CPI includes the cost of buying and owning a home!! It’s called owners equivalent rent and comprises approximately one third of the basket. You can quible with how it’s calculated, but please…
Google AI: “ Owners’ equivalent rent (OER) is calculated by surveying homeowners on how much they would pay to rent their homes if they were not owners.”
(I.e., it has nothing to do with the cost of buying and maintaining a house. The typical house would rent at a massive loss. That’s partly due to the fact that a renter receives less value than an owner. He/she/ze/they must move if the landlord decides to stop renting the place out.)
“The typical house would rent at a massive loss”
Philip, you gotta be kidding me. Is typical house build starting Biden presidency? Typical house in my area rents at 6 times of typical monthly mortgage on 95% percent of initial house equity.
My parents old multi-story building yields 1.5 times of its estimated value in annual rent of its apartments. Even now, new homes are coming up for a soul purpose of AirBnB and other vocational rentals. I doubt that the owners are subsidizing temporary tenants.
Perplexed: if the typical house could be purchased and rented out at a profit there would be an offer from an institutional investor for a typical house. (There are some exceptions to this rule, of course, and institutional investors do own about 2% of single-family houses in the U.S.)
Let me know when https://rentprogress.com/new comes into your neighborhood and offers to buy everyone’s house!
Supposedly the institutional investors look for markets where the price to rent ratio is 15 or lower. That excludes almost everywhere that Americans want to live. Here are some stats, though I don’t think they are specific to single-family houses (and for some of the crowded cities, e.g., NYC, the stats are going to be nearly all condos/apartments):
https://www.sofi.com/learn/content/price-to-rent-ratio-in-50-cities/
Rust Belt cities are apparently ones where it might make sense to buy a house and then rent it out. But in doing that you’re betting that the flow of immigrants will be steady. Without Latinx and Muslim immigration the Rust Belt would have an enormous oversupply of housing due to the productive native-born residents fleeing. See, for example, https://www.daytonohio.gov/1010/Immigrants-of-Dayton
“Between 2014 and 2019, the total population in the City of Dayton decreased by 0.2% while the immigrant population increased by +25.9% during the same time period.”
(Remember that it would be inaccurate to characterize the above trend as a “replacement”.)
@perplexed, nearly all rental properties are backed by commercial mortgages, which carry significantly higher interest rates than standard residential loans. In addition, property taxes and insurance costs are substantially higher. On top of that, strict government regulations and the risk of bad tenants, can easily wipe out any profit for the year(s).
This is why The Rent Is Too Damn High!
Polling homeowners about OER makes no sense to me. I have no freaking idea what my house would rent for, and I don’t care enough to find out. If they called my mom and asked her, she’d probably say “Maybe 200 a month”. Why not ask Blackstone, who owns tens of thousands of single family homes, and ask them?
I think the problem with asking a corporate owner of single-family houses is that these tend to be in some unusual and not-representative markets.
The honest way to do it is the way that it was formerly done. Look at the price of houses, property tax, etc.!
OER questions are not used in rental price sampling, real rental data is used. Somehow experts, including some renaissance men non-experts, are surprised that CPI rental prices follow but lag real estate prices. Median age of single family house in the US is 40 years. 40 years ago for median house price was $110,000. It’s median price in 2025 is about $400,000, a little less then building new median house. Even though rental prices trail rising real estate prices, they trail it only by few years. Rental prices change every year, ins some markets even more frequently. Thus average ownership costs much less then average rental, due to one-time nature of home buying transaction and fixed mortgage payment based on strike price. Also, average house is a real asset, even if only on estimator document. You can use it as a collateral to make more money or sell it. Versus rent growing every year or two, with no capital occurred. Real estate – Ponzi scheme of life.
For non googly children, more data and analysis. Most of the time probabilistic and aggregate nature of modern LLMs just does not cut it.
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm
https://www.brookings.edu/articles/how-does-the-consumer-price-index-account-for-the-cost-of-housing/
Philip and George A, thanks for your info. There are exceptions, but on a larger scale you both are probably right. Even I was an immigrant, although most of the times I am perceived either as a local or a someone from Puerto-Rico, which is as we know is a place in North America. And so was George A, per his old posts. However, your comments do not show hat a typical house is being rented at a massive loss. I know multiple small landlords who profit of their single home rentals and are buying new single home rentals and property management campaniles which are buying buildings for rent and which have long backlogs of perspective tenant lists.
Thus in my mind Philip’s original point that CPI is not a good estimate of housing costs remains invalid. If anything it is an overestimate of typical single home housing cost and inflates official CPI number.
I agree with George A that commercial rentals is a tough business and that regulations in big cities make it less profitable and raise prices for all consumers. In my area, non paying tenant will be on the street next week and our housing costs are relatively small and we have no homeless people. A liberal lawyer came from a large city to semi-retire, and fight for rights of non-rent payers as a income on side hobby. Needless to say he had shortly deported. Our juries (local and immigrants, 95% homeowners) routinely side with repossession agents against local or immigrant trash., even though repossession agent around here look like tough guys from countries with permanent military conflicts. On the other hand, I remember stories from large cities with families not paying rent for years, claiming paint job was not done right, and in 5 years moving to another place without paying, after finally loosing all appeals in courts. This unaffordable city’s ruling party now nominated Ugandan islamo-communist with US liberal college credentials to fix their problems which include many homeless.
perplexed: I guess you’re entitled to your opinion that OER is lower than the actual cost of buying a house and paying all associated expenses (property tax, maintenance, landscaping). ChatGPT disagrees with you: “Owner’s Equivalent Rent (OER) is typically lower than the actual cost of homeownership”
I’m actually not sure why it makes sense to ask a typical homeowner what his/her/zir/their house would rent for. At least for single-family homes, it is rare for an identical home in the same neighborhood to be rented at all, much less rented at a price that everyone in the neighborhood is aware of. The Congressional Research Service makes this point in https://sgp.fas.org/crs/misc/IF12164.pdf
Since it is a completely fictitious price, however, you can hold the opinion that on average owners of single-family homes wildly overestimate what their houses would rent for to the point that the rental rates actually would be more than all of their expenses (including a factor for the unpaid labor that they spend in managing and maintaining the house).
Philip, good point on surveying home owners. Interestingly, nobody ever asked me on my home rental price equivalent. Are you sure that Google and other AI tell 100% truth or could it be one idiocracy predictions about AI use that came already true? Government docs say that “The CPI Hosing Survey collects prise observations of rental housing units in urban areas across the United States” No word on rent equivalency questions. My personal estimates come from real rental prices of state route – facing townhouse condos that are split into one – and – two rental apartments with typical rent for smaller one bedroom unit being around twice average monthly mortgage for an area 3 time as large single family house with half an acre of land, in a better area Of course, you are free to believe that the rentals are loosing money for altruistic landlords and that Uncle Grok will have it all explained for yourself so you could share it with an unenlightened peasant like myself.