Monday, May 23, 2005

Real Estate, the CPI, and Inflation

One of the interesting things about the consumer price index is that while one of its component prices is rental prices and owner-equivalent rents, it actually excludes actual home prices. This isn't an unreasonable approach generally, though it's apparently leading to some perverse results. The increased demand for home ownership both for primary residence and for rental property investment purposes has suppressed rental prices while home prices (in many markets) have been skyrocketing. So, the housing portion of the CPI may perversely being held down by an overheated housing market.