Case Shiller National and Top 10 City Home Prices - OER, Rent and CPI from BLS

Current Case-Shiller data, released today, is through November. The rest of the numbers from the BLS reflect the same timeframe.

OER stands for Owner's Equivalent Rent. It's the price one would pay to rent their own house from themselves, unfurnished, without utilities.  

November 2022 Comparison

• Case-Shiller National: 7.69 Percent
• Case-Shiller 10-City: 6.31 Percent
• Primary Rent: 7.91 Percent
• OER: 7.13 Percent
• CPI: 7.11 Percent
• Fed Funds Rate: 3.78 Percent

That pretty much says most of what you need to know. As of November, the Fed was still far behind the curve by any reasonable measure.

Let's go through the math and my preferred measure of CPI that factors housing into the equation.

A Better Measure of Inflation Rationale

• We can calculate a better measure of inflation by substituting home prices for Owners' Equivalent Rent in the CPI.
• OER is the single largest component in the CPI with a weight of 24.235 percent as of December 2022. The number changes slightly every month. 
• The BLS used to have home prices directly in the CPI but abandoned the practice on the theory that homes are a capital expense, not a consumer expense. 
• I put housing back in an alternate CPI because inflation matters, not just alleged consumer inflation. Also bubbles matter, as the Fed unfortunately has proved time and time again. 

Real Interest Rates CPI and Case-Shiller 

Real Interest Rates based off Fed Funds Rate

Real Interest Rate Notes

• The Real CPI Interest Rate is the CPI minus the Fed Funds Rate
• The Real CSAI is formed by substituting the percentage rise in the National Case Shiller home price index instead of OER, then subtracting the Fed Funds Rate.

Explaining the Housing Bubble and Great Recession

• In 2004, the Fed held its key interest at roughly 1 percent despite a roaring housing bubble. 
• I calculate real interest rates of -2.24 percent based off the CPI and -4.57 by my preferred measure. 
• By 2007, my measure or real interest rates went from -4.57 percent to +4.07 percent. Is it any wonder prices crashed and a Great Recession started?

In 2020, the Fed the Fed fueled its already huge asset price bubble with reckless QE and entirely predictable results.

Case-Shiller Home Price Index

Case-Shiller home price data via St. Louis Fed, chart by Mish

This is precisely what happens when the Fed blows bubbles. 

More By This Author: