By ANDREW JEFFERY

This post first appeared on Minyanville.

Deflation, the economic beast many feared would devour the next decade, appears to have been vanquished.

Or has it?

Superficial signs of renewed inflation are everywhere: Oil prices appear to be stabilizing, and concern is growing about future supply shortages (which, by extension, could lead to higher prices at the pump). The stock market has staged an impressive rally, with expectant bulls and former bears finding for “green shoots” of economic growth everywhere. Home prices, if you look purely at the data and ignore fundamentals, are starting to slow their fantastic decline.

Even the consumer price index, or CPI, is looking tame. Well, except for last month’s drop, the largest in more than 50 years.

And herein lies the problem.

The CPI, the market’s favorite inflation gauge, has been masking the structural deflation in our midst since the housing market fell of its wheels almost 4 years ago. Given the precipitous drop in property values, one would naturally expect the housing component of the CPI to fall in kind. Not so.

The statistical alchemists, err, experts, at the Bureau of Labor Statistics use something called “owners equivalent rent,” OER, to measure consumer housing expenses. OER tries to approximate the cost to rent the country’s typical home, and according to the Wall Street Journal makes up 24% of the CPI and 31% of the core CPI, which backs out food and energy costs.

And since even as property values have slid in record-breaking fashion rents remained buoyant, OER has vastly understated the drop in home prices. This means the CPI — were it to reflect some sort of economic reality — would have fallen more than it actually has.

As the housing slump rolls on, the pain is increasingly being felt by landlords, not just owner occupiers. Rents in big cities like New York and San Francisco are already dropping, as would-be tenants demand concessions from property owners. Vacancies are increasing, as even those driven from the housing market by foreclosures and the tight mortgage market can’t fill up empty apartments, condos and track homes.

Drive around suburbia and “For Rent” signs are nearly as common as “For Sale” signs.

Rents are likely to keep falling and as a result, OER could begin to drag down the CPI. Of course, statisticians can and likely will play games with adjustments for volatile energy prices (renters often don’t pay for utilities, so energy costs are backed out of OER). Further, government bean counters are even considering adapting OER to reflect new, high levels of home ownership (just in time for a reversion to the historic mean, thanks for being ahead of the curve guys).

As long as construing economic data in a way that makes it seem more likely for effectively insolvent financial institutions like Bank of America (BAC) and Citigroup (C) to raise capital and remain in business, that will remain the status quo.

Meanwhile, back in reality, saving is now en vogue, deleveraging is ongoing and the repayment (and destruction) of dollar-denominated debt will keep inflation in check for the foreseeable future. More importantly, the recognition that smaller can be better and less can be more are becoming entrenched in the lives of ordinary Americans.

Don’t believe the hype: Deflation isn’t going away any time soon.

Craigslist.com is a tool almost everyone is familiar with, but most people don’t associate it with their home buying search. While Craigslist does have numerous listings of homes for sale in its “real estate for sale” section, we believe the site’s rental data is more valuable for the diligent home buyer.

An informed home purchase must take into consideration how much renting a similar property would cost. Especially in the past few years, renting has been a great way to save money and avoid exposure to a declining real estate market. In most metropolitan markets, Criagslist is the most comprehensive location for rental market data.

Anyone who has used Criagslist can attest to its utter simplicity. Searches are easy and can be filtered by not only price, bedroom/bathroom counts, key words and photos, but by individual neighborhoods.

For the foreseeable future, the monthly cost of owning vs. renting will become increasingly similar. In some areas, its already cheaper to own. Armed with accurate rental data, you can confidently examine different personal budget scenarios and determine whether renting or buying makes more sense for you.

But beyond just understanding the difference between the costs of renting and buying in a certain town, it may make sense to “move up” into a better school district by renting, rather than buying. Likewise, if a certain neighborhood is out of your price range to buy but offers a great commute — why not consider renting?

There is, of course, a bit of a social stigma associated with renting rather than owning, not to mention the satisfaction of owning a home and creating a life for you and your family inside. These intangibles may be difficult to quantify, but they are no less an important part of the rent vs. buy decision.

For each person, these factors may be “worth” different amounts, but until you look at the numbers its impossible to say, “Owning a home is worth $X per month to me. Looks like we’ll be renting for a bit longer.” Or, “Let’s take the plunge!”

This post first appeared on Minyanville and our sister site, Dawn Patrol.

Every once in a while, the most important news story of the day is the one the Wall Street Journal allots a mere 200 words.

In a move that will soon be greeted with quiet mutterings of “I should have seen this coming,” British Prime Minister Gordon Blair announced today a shift in the focus of initiatives aimed at reviving the ailing housing industry, and by extension the rest of the economy.

Until this point, much of the government-directed efforts to fix broken housing markets — both here and abroad — have focused on the mortgage side of housing transactions.

This should come as no surprise, as Wall Street banks like Goldman Sachs (GS), Merrill Lynch (MER), Lehman Brothers (LEH) and Bear Stearns — er, JPMorgan (JPM) — had staked their reputations — and balance sheets — on those mortgages.

Foreclosure prevention has attempted to preserve the integrity of the loan by extending its ability to keep generating cash for the lender. If a family or 2 were helped in the process, all the better. But with trillions of dollars in securities propping up the world’s financial system based on unreliable monthly payments from struggling American consumers, the mortgage was saved in favor of the property itself or its inhabitants.

HOPE NOW and Project Lifeline have been our bureaucrats’ best effort at leeping people from being kicked out of their homes. Anecdotally and by the numbers, the results have been less than awe-inspiring.

As part of a larger economic reform package, Brown is taking a decidedly different approach. Any homeowner behind on his mortgage and facing the risk of repossession will have his situation evaluated by a “money advisor,” who, according to the Guardian, will determine whether nor not the loan is worth salvaging.

If this guru of the economically unfeasible gives the thumbs-down, the borrower gets a rescue package; the government gets the house. A housing association or other publicly funded group can then lease the property back to for the former homeowner or otherwise rehab the property for new tenants.

The lender can either be made whole or can retain some of the risk (and therefore potential return) in the property, staying in the game a bit longer.

This focus on the raw asset — the house — rather than on a flimsy deed of trust represents a step in the right direction in the “war on foreclosures.” The mere fact that Washington (and London) are dipping their tentacles this deep into housing markets should rightly disturb anyone with even half-hearted capitalistic ideals – but some government plans are better than others.

The problem with mortgage-focused foreclosure prevention is that it prolongs a borrower’s agony by keeping him in a loan he or she should never have taken out in the first place. The house itself bears the brunt of this strategy’s shortcomings, since homeowners forgo maintenance, landscaping, trash removal and other value-preserving services to survive another month.

By stepping in and taking control of the property before the copper pipes can be ripped out and the repossession process can further erode the home’s resale value, the plan could slow some of the economic hardship and community decay caused by abandoned, vandalized homes.

Although the business of buying and selling distressed mortgage assets — including bank-owned homes — is hacking its way through the world of troubled properties, the scale of the problem and the challenging nature of the transaction itself mean that the crisis will take years to work through.

If the government is going to use taxpayer dollars to try to get us out of this mess, land banks and direct funds for rebuilding communities isn’t a terrible place to start.

It sure beats bailing out Wall Street.