Methodology Update · v0.2
An update to how the Reality Index measures the largest line in the family budget — and what it changed.
Housing is the biggest single expense in most American budgets, and it's the line where our measure and the government's diverge most. So it's the line worth getting right. Today we're rolling out a refinement to how the Reality Index tracks it.
Call it version 0.2. Here's what changed, in plain terms.
Most of what the Reality Index tracks — gas, groceries, electricity, insurance premiums — gets fresh data every month. Housing was the exception. Between data releases, the first version of our housing measure carried the most recent figure forward until the next update arrived. For the largest and most volatile component of the index, that lag mattered. When mortgage rates jumped or rents took off, the index was slow to register it.
Version 0.2 rebuilds the housing number from the ground up every month, from live inputs:
The owner side blends two costs: what a family buying today would pay, and what an existing owner is already paying on a mortgage they took out years ago. We weight that blend roughly 10% new buyers, 90% existing owners — which matches how often households actually reset their housing cost in a given year, through home sales and refinancing. In 2025 dollars, that works out to about $3,118 a month for a new buyer and $2,747 for an existing owner.
We checked the rebuilt series against the figures we'd already published. It lands within 0.03% on average across 45 years, and within 0.16% at the most recent reading. The new engine isn't a different index — it's the same index, measured more responsively.
We re-ran every month back to 2015 — 131 months in all — on the new engine. The headline gap between the Reality Index and CPI didn't move much, but it sharpened:
Cumulatively, since 1980, the Reality Index now shows prices rising 5.54× versus CPI's 4.04× — a 37% gap, up modestly from our first estimate.
Because the new engine reacts to live data, it doesn't always push the Reality Index higher. When mortgage rates fall or rents cool, the housing number follows them down — and in a handful of months, that's enough to put the Reality Index below CPI. That's the engine doing its job, not a thumb on the scale. A measure that only ever moved in one direction wouldn't be measuring anything.
The point of the Reality Index has always been to track what families actually pay, as they pay it. Housing is the place where that's hardest to capture and where it matters most. Version 0.2 lets the index see housing the way a household experiences it — in real time, up and down — rather than through a figure that arrives late.
The methodology is documented in full in the methodology paper. As always, the numbers will keep evolving as the inputs do. That's the point.