There’s little doubt the cost of housing has been increasing for a long time, whether you own or rent. Which cost has increased more? The FRED graph above seems to indicate that there has been little difference between these two growth rates for about four decades. But let’s deconstruct this graph to understand it a little better.
First, the two series are indexed to have a value of 100 in 1982. This means that it’s useless to compare their levels. That is, we cannot tell whether renting or owning is more affordable. We can only compare how the costs have evolved since 1982, and it’s quite apparent that they track each other quite well.
Second, the CPI series for rents is collected less frequently than other CPI series, meaning that its fluctuations in the data may show a delayed reality. That doesn’t matter much here, as we’re looking at long-term trends. And this applies also to the other series depicted here.
Third, the CPI series for house ownership requires quite a few explanations. Here, the Bureau of Labor Statistics makes an attempt to calculate the “true” cost of ownership, not the cost of buying a home, which is considered an investment, as are home improvements and mortgage interest. The idea is to figure out how much an owner-occupied home would rent for, not including utilities. This measure is based on reports from owners that are adjusted based on the housing stock compositions and comparisons with similar rental properties. The details are complex and explained here. In other words, this series is only loosely related to house prices.
How this graph was created: Search FRED for and select “CPI rent.” From the “Edit Graph” panel, use the “Add Line” tab to search for “CPI rent” again and select the other series.
Suggested by Christian Zimmermann.