This is a followup to my post Dissecting the Fed-Sponsored Housing Bubble; HPI-CPI Revisited; Real Housing Prices; Price Inflation Higher than Fed Admits.
Data for the following charts is courtesy of Lender Processing Services (LPS), Specifically the LPS Home Price Index (HPI).
The charts were produced by Doug Short at Advisor Perspectives. Anecdotes on the charts in light blue are by me.
Background
The CPI does not track home prices per se, rather the CPI uses a concept called “Owners’ Equivalent Rent” (OER) as a proxy for home prices.
The BLS determines OER from a measure of actual rental prices and also by asking homeowners the question “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
If you find that preposterous, I am sure you are not the only one. Regardless, rental prices are simply not a valid measure of home prices.
OER Weighting in CPI
 Mish Shedlock |
OER is now at 24.041% of CPI, which still rounds to 24.0%, but the other housing wedge is now an even 17.0%, down from 17.1% in the previous version.