America's Rental-Market Mystery

&gt; In America oer accounts for about a quarter of the consumer-price index, making it the single biggest component.<p>Or ~50% of total spending for most renters.<p>Trying to measure inflation in one way when the biggest expense (by far) is completely different for two large groups is interesting (~67% own vs ~33% rent).<p>If you&#x27;ve owned a house for a while, you <i>should be</i> doing fine. If not, you probably aren&#x27;t.

I suppose the conclusion, &quot;the biggest picture is that OER inflation is running well above pure rent inflation (see chart)...it may well the deter the Fed from cutting interest rates anytime soon&quot; may be relevant today, but when I see the chart over time, I see that the entire concept of OER inflation is completely out of touch with reality, and that if they were observing observed rent instead they wouldn&#x27;t have been so far behind the ball on inflation. Not sure if paying attention to observed rent now makes up for ignoring it earlier yet.

I feel as if they buried the lede. That is, the government has an index to track something and that index is inaccurate for a number of reasons. Nonetheless, other gov &quot;agencies&quot; use that defective index to make decisions, decisions that eventually have significant impact on all (i.e. national, and international for countries that tightly coupled to the USD).

<a href="https:&#x2F;&#x2F;archive.ph&#x2F;ttVje" rel="nofollow">https:&#x2F;&#x2F;archive.ph&#x2F;ttVje</a>

I&#x27;ve thought for a while that owner equivalent rent was a bad concept. I think it&#x27;s more useful to think about marginal rent, i.e. the cost to house an additional person. If someone dropped into a given location from space today, how much would they have to pay to have a place to live? In some places the best available options without credit history or deposit are marginally attached dwellings like extended stay motels.<p>In the case of rentals, the cost between a 1 bedroom and 2 bedroom apartment is substantial. For owners, there may already be a bedroom or convertible space, but if not, the cost can be in the thousands at minimum to upsize or downsize.

Anyone notice OER didnt capture the rapid increase in housing prices during covid? Am I really to believe that housing increased by 2% in 2020?<p>The ecomomist says OER overstates inflation... but the chart looks like it understates it, at least until recently.<p>Edit: ok after covid:<p><a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;MSPUS" rel="nofollow">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;MSPUS</a><p><a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;ASPUS" rel="nofollow">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;ASPUS</a>

This is an interesting take. I currently live in an area where my rent is about 35% cheaper than taking out a mortgage at the current interest rates.

This is especially interesting as new housing stock is often not even <i>available</i> for purchase. It’s lease-only so the REITs get a portion of your income forever.