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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: John Vosilla who wrote (56455)	3/22/2006 2:41:51 AM
From: mishedlo	Read Replies (2) of 110194

To me the fairest computation would be: Change in monthly payment based on median price with average 30 yr fixed rate with 20% down and corresponding RE taxes and insurance added in. Take that and multiply by the percentage of the households that are owner occupied homeowners. Then take the change in median monthly rent and multiply by the percentage of households that are renters. Add together and adjust for any measurable change in size,quality ect.. that can be quantified. John, That is a quite reasonable approach especially since you "adjust for any measurable change in size,quality ect.. that can be quantified." Those are hard to quantify but at least you see it has to be done. But there is one more complexity. Actually several. Here is one of them. What happens when someone like Centex reprices an entire neighborhood down by selling a few homes in a neighborhood for $150,000 less that everyone else paid in that neighborhood? If 20 houses sold in Sept and 3 in Dec (assume the same exact model) are you only looking at those three in Dec and repricing somehow everyone of those other houses? If so, that seems about right. Perhaps more problematic is a stable neighborhood where hardly anything sells. If that is also a neighborhood where there are lots of different home styles and sizes, it can be hard to arrive at that median price. But, assuming those problems can be overcome, the idea has good merit. For renters one needs to adjust for cases where some pay heat and others do not as opposed to just looking at the contract value. I am not sure this part is correct however "with average 30 yr fixed rate with 20% down and corresponding RE taxes and insurance added in.". I fail to see how down payment matters except for your proposal of measuring payment. It probably should not be payment but the median price itself. Otherwise you are constantly assuming that everyone always owes exactly 80% of their home at all times. That does not seem right. There might also be some double counting issues as well (ie:for those that think the FED should target inflation by raising interest rates, yet interest rates themselves are used to measure inflation in your example). Care to rethink that part? One other issue: how go you handle property tax deductions. Renters do not get them (except for one state), and most can deduct them. So.... property taxes should be after deductions perhaps. I am not trying to make this more complicated than need be, I am trying to show how complicated it is. I am sure I am leaving out lots of things, but all and all you are certainly on the right track. Now.... what % of your basket do you want to make housing? Sheeesh? Is it possible that you and I can put together a reasonable basket starting point as well as methodology for measuring prices? Mish

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