The #1 expense category of the U.S. Consumer Price Index for All Urban Consumers (CPI-U) is Shelter, which accounts for 32.704% of the U.S. price inflation rate. The Shelter category consists of two expenditures: Rent of primary residence at 7.664% of the CPI-U and Owners' equivalent rent of residences (OER) at 23.713% of the CPI-U.
The U.S. Bureau of Labor Statistics (BLS) calculates OER by surveying U.S. consumers who own their primary residence and asking them the following question: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
This is an extremely flawed method for calculating the U.S. cost of home ownership. In April 2021, the S&P/Case-Shiller U.S. National Home Price Index increased by 14.582% year-over-year, which was the #1 highest year-over-year increase since the index began in January 1988. For the same month of April 2021 the CPI-U OER increased by only 2.042% year-over-year, which is lower than 89.3% of all prior months since January 1988. For the month of June 2021 the CPI-U OER increased by a slightly higher 2.343% year-over-year, but this is still lower than 77.9% of all prior months since January 1988.
The correlation since January 1988 between year-over-year increases in the S&P/Case-Shiller U.S. National Home Price Index and the CPI-U OER is an absurdly low 19.25%. One reason the CPI-U OER is so inaccurate is due to the fact that the BLS only surveys each participating home owner once every six months and rotates between one of six panels each month. This means that it is only obtaining up-to-date data for 1/6th of the homeowners it surveys. By backdating historical CPI-U OER data by 6 months its correlation to the S&P/Case-Shiller U.S. National Home Price Index improves slightly to 34.814%, but remains insanely low.
To obtain a maximum correlation between the S&P/Case-Shiller U.S. National Home Price Index and CPI-U OER, we had to backdate historical CPI-U OER data by 21 months where the correlation peaked out at 61.22%. This means that besides the BLS purposely being 6 months behind, it takes the average homeowner approximately 15 months to become up-to-date about their current home value and even then the CPI-U OER reaches only a fraction of actual U.S. home price increases and underestimates the cost of home ownership.
As far as the CPI-U rent of primary residence expenditure, it gets calculated by the BLS surveying U.S. renters with the following question, "What is the rental charge to your [household] for this unit including any extra charges for garage and parking facilities? Do not include direct payments by local, state or federal agencies. What period of time does this cover?"
In June 2021, the CPI-U rent of primary residence expenditure increased by only 1.916% year-over-year, which is lower than 93.1% of all prior months since January 1988. This survey is also 6 months behind and with the recent scamdemic has been more flawed than usual. Landlords have been unable to evict tenants, so many tenants simply stopped paying rent. There is currently a huge backlog of eviction cases across the nation and once landlords are finally able to evict non-paying tenants, they will be forced to implement large rent increases to make up for their scamdemic losses.
The U.S. mainstream media has been blaming the current U.S. price inflation crisis on "transitory" increases in used car prices, but used cars and trucks make up only 3.166% of the CPI-U! The Shelter category is 10.32X larger and it is likely to soon rise from near record lows to new all-time highs! Even then, it will underestimate the rapidly rising cost of home ownership due to its flawed survey methodology!
The S&P/Case-Shiller U.S. National Home Price Index's April 2021 year-over-year increase of 14.582% is 3.17X higher than the long-term median of 4.60%. The June 2021 U.S. CPI-U OER year-over-year increase of 2.343% remains well below the long-term median of 3.1%.
NIA has created an exclusive chart comparing the S&P/Case-Shiller U.S. National Home Price Index to the U.S. CPI-U OER. NIA has backdated the U.S. CPI-U OER by 21 months to reach the maximum possible correlation of 61.22%.