Housing costs, including rental prices, are on the path to stabilizing but evidence of this won’t show up in inflation measures anytime soon, economists say.
The latest Consumer Price Index numbers, which are used to measure inflation, came out Thursday morning and showed a notable easing. But the survey used to measure shelter, a large component of inflation, lags real-time data.
After the Federal Reserve raised interest rates again this month, Fed chair Jerome Powell was asked how the Fed considers private real-time housing market data when making decisions about interest rates. Powell said that although the Fed is aware of the data, it still looks at the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) to understand how it should respond to inflation because it’s important for the Fed to understand rent for all tenants, not just new leases. But he added that rent should start to come down eventually.
“One thing is that I think right now, if you look at the pattern of that series of the new leases, it’s very pro-cyclical. So rents went up much more than the CPI and PCE rents did and now they’re coming down faster,” he said. “ … The new leases are telling you there will come a point at which rent inflation will start to come down but that point is well out from where we are now … at some point, you’ll see rents coming down.”
Economists spoke to States Newsroom about what factors are affecting the health of the housing market right now.
A turning point
Month-over-month data from Rent.com for September, the latest month available, shows rent prices are finally starting to moderate. Year-over-year rent increases were up 8.8% in September compared to a 12.3% increase in August. In the states Rent.com looked at median month-over-month rent fell in more than 60% of markets.
John O’Trakoun, senior policy economist in the research department of the Federal Reserve Bank of Richmond, said it’s possible that the moderation in rent prices is a good sign for the economy but added that it could take more than a year for the private data to show up in lagging economic indicators.
“I think it is kind of encouraging. Hopefully, in like 18 months or so, we’ll start to see this inflection point in the asking rent to flow through into the CPI and PCE [Personal Consumption Expenditures] shelter components. But in the meantime, we’ve got to keep the pressure going on inflation and slow down demand in order to better match with supply constraints,” he said. Read more