‘Peak inflation not yet reached’: rents continue to rise, putting pressure on potential home buyers. This is bad news for the Federal Reserve.
Economists say rents will continue to rise, contributing to inflation, through the end of the year.
With home prices and mortgage rates rising, many potential homeowners are choosing to rent for a longer period, choosing to wait until rates return to normal. But rents are also rising, buoyed by a housing shortage that has driven up the cost of living for millions of Americans. The national average monthly rent even crossed $2,000 for the first time in May, according to Redfin,
All of this is fueling inflation, the very enemy the Fed is trying to tackle. Shelter, including rent costs and owners’ equivalent rent, or what a homeowner can rent their property for, makes up about one-third of the CPI, a key inflation measure.
During the first half of this year, rents increased 5.4% nationwide, according to a report from Apartment Listing. While that’s actually a slower rise than the jump in rents over the same period last year, major cities still see some ridiculous swings in rent prices: rents in New York City, for example, are up 27% over the past year, listing apartments He said. Meanwhile, the San Jose metropolitan area has seen the fastest growth in rents over the past six months, while prices in Boston and Seattle — and even smaller markets like Hartford, Conn, and Providence, RI — are also increasing.
Rents are on the rise given that the housing supply remains tight; In addition, prices are pushing the boundaries, Jennifer Lee, chief economist at BMO Capital Markets, told MarketWatch.
““Given that housing, or owners’ equivalent rent, is above 20% CPI, yes, that’s concerning because it would add to the already high inflation pressures.”“
“Given that housing, or owners’ equivalent rent, is above 20% CPI, yes, that’s concerning because it would add to already high inflation pressures,” she added. “Another sign that the peak of inflation has not yet reached.”
With some signs of falling home prices in some frenetic market, there may be some relief for renters.
“We found that house prices lead to rental prices for at least 12 months,” Kathy Bostancik, chief US economist at Oxford Economics, told MarketWatch.
“Ultimately, the slower pace of home price gains should lead to lower rental prices – most likely sometime in the middle of 2023,” she added.
However, inflation may continue to burn low-income people and people of color — who have already had a disproportionate difficulty keeping up with their housing payments during the pandemic — in the coming months.
The cost of a family is considered overburdened if they put more than 30% of their income into rent — a reality for about 46% of renters in 2019, according to the Harvard Joint Center for Housing Studies. That year, low-income renters made up 62% of the cost-burdened households, and 86% of households that spent half or more of their income on rent.
For those families, even a slight increase in rent can spell disaster, as they may not have much room for financial maneuvering to make it work.
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