In Eric Farmelant’s nearly decade-long career as a real estate agent in Miami, he has never seen landlords engage in real estate auction wars. rentals until the coronavirus pandemic spurred demand for beachfront homes in Florida. He can no longer show four or five listings to clients because many properties are being leased without being visible.
Farmelant, who works for Ibis Realty Group, said: “You are seeing landlords drop their rent a year ago to get their offer accepted.
According to Apartment List data, rents have increased by nearly 40% since January 2021, indicating a broad trend taking place across the country.
For brokers, a double-digit rental increase is a boon for the business. For the Federal Reserve, they serve as another stumbling block in the central bank’s quest to keep its worst inflation in decades under control.
With a slight decline expected in the near-term, economists warn rising rents will act as a driving factor, maintaining upward pressure on inflation even as consumer price growth slows. used for other product groups. It makes the US central bank’s job of tackling soaring prices more difficult.
“It would be hard to say ‘we have inflation under control’ if you still have shelter costs continuing to climb higher,” said Sarah House, senior economist at Wells Fargo. She expects high rental inflation to continue until at least the end of the year, and despite some regulatory measures that offset other goods and services, “that will complicate the task further.” Fed’s forward service”.
Top officials pay close attention to housing-related inflation, as it is an important component of overall inflation.
By some estimates, the cost of shelter, which accounts for about a third of the consumer price index, in June rose at a rate of annual rate is 9.1%according to the Bureau of Labor Statistics, the fastest increase since November 1981. For the “core” measure, which excludes volatile items such as food and energy, it accounted for more than 40%.
Compared to the same time last year, rents rose 5.8 percent after the biggest monthly increase since 1986 of 0.8 percent. Owner’s parity rent, a measure of what landlords believe their property will rent, rose 0.7 percent. Overall, the cost of temporary accommodation has increased by 5.6% in the past 12 months, the highest level since 1991.
The larger-than-expected acceleration has reset expectations for how quickly headline inflation can get under control this year and how much further monetary policy tightening could be forthcoming. The Fed said it needs to see a clear deceleration in monthly inflation data before significantly slowing the pace of rate hikes.
Forecasts for rent inflation depend largely on the trajectory of home prices, which have surged during the pandemic as people revamp their lives in a new era of working from home, looking to work from home. less dense areas and take advantage of extremely low mortgage rates. As more potential buyers have been priced out of the market, they have turned to rental options.
Now buyers are being priced in for a different reason. House prices are starting to moderate after hitting another record in June, according to data released by National Association of Realtors on Wednesday. But the cost to finance purchases through borrowing has skyrocketed as the Fed raises interest rates.
According to Realtor.com, the gap between the monthly starting cost of homeownership and rent has increased by about 25 percentage points, or nearly $500. In June alone, NAR reported sales of previously owned homes fell 5.4%, or 14% from a year earlier.
“People who are already valued outside of the residential market for sale are increasingly moving into the rental market and that is also driving demand up,” said Daryl Fairweather, chief economist at Redfin.
Coupled with the fact that rental housing prices track changes in house prices for about 18 months, Kathy Bostjancic, chief US economist at Oxford Economics, said rental inflation may not moderate until the second quarter of 2023. .
Economists like Ryan Wang at HSBC have revised their forecasts higher, sending rent inflation on a yearly basis to a peak of 7% early next year.
“New leases are being signed at much higher rents than in the past, and this is leading to an increase in total rents as measured by the CPI,” he said.
Given the way the BLS calculates rent data, broader inflationary effects may also take time to show up in official figures. Michael Pond, head of global inflation-related research at Barclays, calculates that the lag could be as long as six to nine months.
In February, researchers at the Fed’s San Francisco branch estimated that current rental market trends will increase overall CPI inflation increased by 1.1 percentage points in both 2022 and 2023, or 0.5 percentage points for the central bank’s preferred inflation gauge, the personal consumption expenditures index. So far, those predictions have remained in place.
What could help alleviate some of this pressure is an increased housing supply, which the Biden administration is prioritizing. However, economists and housing experts say those efforts do little to alleviate the immediate problem.
“We don’t have enough housing. Even if you’re building over half a million units,” said Danushka Nanayakkara-Skillington at the National Association of Builders. The skyrocketing material costs for builders are also being passed on to tenants, she said.
Brokers and real estate investors are most wary of a recession, which economists predict next year, as the Fed makes an “unconditional” pledge to restore price stability chief. For Tom Porcelli, an economist at RBC Capital Markets, housing is likely “just at the beginning of a recession”.
Redfin’s Fairweather added: “We’re in a period of economic stagnation due to the rate hikes the Fed is doing.
“That would slow down the rate of price growth for basically everything, including rent. But it will only take a while for that to subside. “