Quoted: Good to hear the CPI is so non-political. Maybe it is just where I live but I think inflation, especially in housing has been increasing a lot faster than 4%. It may be that housing is going down in other parts of the country compared to Colorado but if anything, I think real estate has been rising even faster in the Sun Belt and the coasts.
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CPI does not include a cost of owned housing. All housing is factored in based on rental rates.
Here's the logic behind not including housing purchase prices:
1) You don't buy a new house every year, so the change in housing prices only affects people in lump sums.
2) CPI doesn't include investment purchases. If you think about your spending as divided into consumption and investment, your owned house is included as an investment. However, if you did not live in the house, then you would be able to rent it out, so the amount of rent you give up by living there represents the true cost to you of living in the house. (i.e. Your consumer half is renting the house from your investor half, at a market rate.)
In most markets rents have been increasing much more slowly than the cost of purchasing a house. Since CPI only includes rents, it doesn't rise as fast as the rising home prices would indicate. But, again, as an investment, rising home prices shouldn't affect the CPI any more than rising stock prices should.