by Calculated Risk on 6/27/2005 12:22:00 AM

My latest post is up on Angry Bear: The Impact of Interest Rates on House Prices. Several people are arguing that housing prices are appropriate based on current interest rates. I argue that this is incorrect.

And from the NY Times: How Home Prices Can Be Hot but Inflation Cool. This article discusses a potential problem with the CPI calculation. When houses prices fall that might increase the reported CPI:

... when housing prices fall, a trend that most people would deem anti-inflationary, and renting becomes more attractive than owning, the index might process the information as evidence that inflation is on the rise. "We got a great deal of criticism that we were overstating inflation in the early 1990's, because housing prices were declining and rents were going up steadily," Mr. Jackman said.

And my friend Mike Shedlock is hearing "Warning bells from homebuilder suppliers".

Best to all.