Rent Price Increases Slow But Still Contribute to Fed and Consumer Misery

Chart Notes

• The National Rent Price is from ApartmentList.Com.
• OER stands for Owners’ Equivalent Rent, the mythical price one would pay to rent one’s own house from oneself, unfurnished and without utilities.
• Rent of Primary residence is just what it sound like. That number and OER are from the BLS.
• The National Rent price is as of August. BLS data is as of July.

The month-over-month rent price increase was a hefty 0.5 percent in August according to ApartmentList.

Our national index rose by 0.5 percent over the course of August, half the rate of growth compared to last month. This marks a deceleration of the rental market that follows a typical, pre-pandemic trend. This year rents have risen slightly faster than they did before the pandemic, but significantly slower than they did in 2021 when rent inflation was at its peak. So far in 2022 rents are up 7.2 percent, compared to 14.8 percent at this point in 2021. Year-over-year growth has slowed to 10 percent, down from a pearl of nearly 18 percent at the beginning of the year.

On the supply side, a deceleration in rent growth was matched with a slight uptick in apartment vacancies. Our vacancy index stands at 5.1 percent today and has gradually eased from a low of 4.1 percent last fall. That said, today’s vacancy rate remains below the pre-pandemic norm, which may be attributable to spiking mortgage rates that continue sidelining first-time homebuyers and keeping more households renting for longer.

Rents increased in 79 of the nation’s 100 largest cities in August. But in 68 of those 79 cities, rent growth was slower this month than last month. Annual rent growth remains elevated (15+ percent) in Florida, as well as a handful of major metropolitan areas including San Diego and New York City.

Not only is rent growth decelerating, it is decelerating when we historically expect it to. Before the pandemic, rent growth would peak in late-summer before softening for several months throughout the fall and winter. 2021 was a major exception, when growth accelerated for an additional two months and did not subside until November. In 2022, rent growth is a bit higher than it was in 2019 and 2018, but the trajectory looks similar to those pre-pandemic years. If the trend holds, we can expect near-flat, or potentially negative, rent growth in September.

Annual Change in Median Rent

Year-to-Date Details

• Through August, the year-to-date increase in 2022 is 7.2 percent.
• This is less than half the 14.8 percent increase that took place during the same months last year but notably faster than the years prior to 2021.
• Rent growth from January to August totaled 4.8 percent in 2018, 4.2 percent in 2019, and -0.2 percent in 2020.

Apartment List Stated Methodology

• We calculate growth rates using a same-unit analysis similar to Case-Shiller’s approach, comparing only units for which we observe transactions in multiple time periods to provide an accurate picture of rent growth that controls for compositional changes in the available inventory.
• We capture repeat transactions – when a single apartment gets rented more than once over time – and check whether the transacted rent price has changed between those transactions
• Rent estimates reflect prices paid by renters, not list prices for units that remain vacant.

Key Difference to BLS

Although Apartment List uses repeat rents of the same or similar unit and prices are are actual prices, not asking prices, it only shows new leases, not repeat leases.

Because new leases on vacant units rise much more rapidly than existing leases, its year-over-year numbers rise or fall faster and in greater magnitude.

The National Rent price reflects year-over-year changes, but in reality, people pay the same amount of rent for 12 months then there is one big price jump 13 months later.

CPI Analysis

Rent of Primary Residence and OER combined are over 30 percent of the CPI.

Gasoline prices are falling fast but at a much slower pace than in July. Electricity and rent are rising. The net impact of this may very well be neutral, perhaps even negative.

Much depends on the month-over-month increase in rent and food.

Given the hefty combined weight of rent in the CPI, this lagging effect may keep inflation stubbornly high for a few more months, perhaps until the record number of homes under construction are finally completed.

New Homes For Sale by Stage of Construction

Of the purported 464,000 homes for sale, only 45,000 are actually built. Another 312,000 have at least started.

The 312,000 started homes is significant, only exceeded in housing bubble years.

Completion will take pressure off rent price increases.

For discussion, please see New Home Sales Crash Accelerates, Sales Down 12.6 Percent in July

This post originated at MishTalk.Com.

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