Real Estate – Apartment Rents too high
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Real Estate – Apartment Rents too high
A key measure of US inflation printed higher than expected last month, sending markets into a tizzy and adding to fears that the Federal Reserve may not lower interest rates at all this year.
But some analysts noted that inflation rates were boosted by just a couple of factors, especially shelter prices.
In short, the rent is too damn high — and it’s keeping inflation and interest rates elevated alongside it. Some analysts think that it’s going to stay that way for a while.
We’ll see if they’re right on Tuesday morning when February’s CPI data is due out.
Prices are expected to rise at an annual rate of 3.1%, unchanged from January, and by 0.4% since last month, a slight acceleration from 0.3%.
What’s happening: Rent has increased significantly over the past year. And despite the Fed’s best efforts to bring it down, it isn’t budging as quickly as expected.
Last month’s Consumer Price Index showed that shelter costs had increased by 6% since last year. Yes, that’s down from their peak of an 8.1% annual increase in February 2023 but still alarmingly elevated.
Shelter costs — which make up about 30% of CPI — are one of the biggest drivers of services inflation and one of the biggest costs and most essential items for Americans.
Over the past year, about two-thirds of the increase in core CPI came from shelter alone, said Greg McBride, chief financial analyst at Bankrate, in a recent note.
“Shelter inflation has been a big focal point for the market,” they wrote in a note on Monday. They expect that to persist this year “and think that services inflation moderation is likely to be slower than the market expects.”
A dose of optimism and a dash of pessimism: Fed Chair Jerome Powell said at a January press conference that an ease in shelter prices is imminent.
“We think that’s coming, and we know it’s coming,” he said. “It’s just a question of when and how big it’ll be.”
An eventual shift to lower rents is in “everyone’s forecasts,” said Powell.
Well, not everyone.
Some economists aren’t expecting a drop anytime soon. “We remain confident that [rent prices] will flatline in 2024, rather than fall,” Capital Economics analyst Thomas Ryan wrote in a recent note.
Rent isn’t like other consumer goods, said Ritti Singh, an organizer with Housing Justice for All. “Once it goes up, it stays up.”
Greedflation: Landlords across the country, said Singh, have been using inflation as an excuse to raise rents exorbitantly without real cause.
Many landlords were forced to raise rents to cover increases in mortgage costs or repair costs, but the majority of localities don’t have laws that regulate how much they can increase rents in a single year. Zillow economists have found that current asking rate rents are up 29.9% since the beginning of the pandemic.
Singh believes that the Fed alone won’t be able to effectively drive down rental inflation. There needs to be local legislation to regulate what landlords can raise rents by as well, she said.
Weird data: Some economists say that CPI data is skewed and can paint a false picture of how high inflation currently is.
The CPI tracks rents that renters pay, but the majority of shelter costs in the index come from something called owners’ equivalent rent. Instead of factoring in the cost of purchasing a house, the index attempts to factor in how much rent homeowners would pay if they rented rather than owned their home.
The thing is, homeowners do own their homes. Inflation on hypothetical rent prices for homes they don’t rent isn’t actually being felt. Plus, rent and home prices don’t always move in sync, and so this can create a false equivalency.
The data could also be lagging.
Research by Goldman Sachs and the Dallas Fed finds that actual rent and owners’ equivalent rent lag the rest of CPI by a full year. That means a current deceleration in rent prices won’t be fully factored into inflation data until February 2025.
So even though data shows that rents across the US cooled last month, dropping for the sixth month in a row nationwide, and providing a bit of relief to renters, that won’t show up in CPI data for a while.
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Real Estate – Apartment Rents too high
Although the recession is dragging down wages, rents across the country are continuing to increase, the report found. Sorry renters.
An average family needs to make more than $38,000 a year in order to afford a two- bedroom apartment. For families relying on a single wage earner, that works out to $18.44 per hour. According to the report, the Bay State is among 10 other states where an individual would have to earn more than $20 per hour to afford a two-bedroom apartment.
As a landlord, I needed to raise my rents just to keep up with the increases in property taxes and condo fees. I don’t see this as a case of greedy landlords. What are your thoughts?
