The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: John Vosilla who wrote (34563)	6/28/2005 8:53:22 PM
From: mishedlo	Read Replies (1) of 306849

A simple and fair formula for the housing component of CPI would be: 1)percentage increase in median home prices (adjusted for change in size and amenities) times the percentage of homeownership 2)plus percentage increase in median rents adjusted for change in size and amenities times percentage of renters. That indeed would be closer to the truth than what Darffot has suggested but it would also not be accurate. Consider the simple case where a person buys a home, lives in it for 30 years and dies. Over that 30 years that person's housing expenses only went up by the factor of property taxes (and other such items like insurance). Perhaps those property taxes were offset by interest expense declines by refinancing at opportune moments. Thus, you model while simple, is way too simple. It needs to incorporate turnover, property taxes and other expenses, and perhaps interest rates as well. If one does all that, one should clearly be able to see just how WRONG looking at price appreciation alone would be. That is the basis of my disagrement with Darffot. Mish

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