From the article:
“To capture OER, homeowners in the Consumer Expenditure Survey — what the CPI is based on — are asked: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?””
That’s pretty amazing. I’d be willing to bet that the overwhelming majority of homeowners have ZERO idea what their house would rent for. Oh sure, they could throw a number out there but I wouldn’t believe many would be close. Perhaps the survey folks are counting on people looking at Zillow for the answer… but is Zillow reliable for such a question?
Zillow thinks our place would rent for a bit over $3.5k/month. Is that high? Low? No idea, but “I’ve heard” that Zillow isn’t particularly reliable for housing values, so let’s just say I have doubts.
Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.
The people who are currently hit with housing inflation are renters, especially low-income renters (i.e. 40% percentile of income and below). Rents for higher end apartments are actually declining in many markets.
If the CPI is really based on homeowners’ guess at rental value, that’s a serious flaw in the index.
Zillow’s estimate of my rental value looks to be pretty close. I think a lot of the complaints that “Zillow rental values are way off” is coming from the same cluless homeowners who are talking to the BLS survey people. Zillow has a huge database and can compare this month’s “guess” with the actual data a few months down the road and refine their model.
intercst
I’ve been complaining about this forever. The way it’s calculated is a joke: it’s literally the owners guessing about what their home would rent for (minus utilities) and then massaged into oblivion.
The only way to get a true picture of “rent” is to use actual rents, because that’s the only place the market plays a role. If they would do that, then scale it up via population size or other knowable variables I would have a smaller complaint (although I do question the whole concept, since owners aren’t actually paying rent, so it is a cost which doesn’t exist. Why not have a similar cost for depreciation of vehicles “owned”? Instead, they use real-time used car prices in the index and list is as (gasp) “used car prices.”)
It’s overstated, it’s a SWAG, and it’s unnecessary. Otherwise, nice little index you got there; shame if something happened to it.