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April 08, 2005
Problems with Calculating Housing Price Inflation
You might have not known that the houseing component of the government's consumer price index, which measures inflation, is not calculated based on the raise in housing prices, but rather the rise in rents. This article explains the shortcomings of that approach. For example:
In the case of housing, which has a 40% weighting in the CPI, the government does not calculate inflation based on actual housing prices, but on the speculation of homeowners as to the rental value of their homes. When calculating the CPI numbers for housing, the government asks a sampling of homeowners: “If someone were to rent your home today, how much do you think it would rent for?” To calculate housing values based on estimated rents is to disregard the crucial link between housing values and interest rates.
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Posted on April 8, 2005 05:14 AM by House 78.
Filed in Real Estate under housing prices.
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