Rising Rents Threaten to Support Inflation

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Kaitlin Cindrich will face a $200 monthly increase in rent this August if she and her husband can renew their apartment lease in Provo, Utah. That 25 percent jump isn’t what she expected, and the 21-year-old fears she may have to skip doctor appointments for her autoimmune disease to keep up with the payments.

Still, he admits he has no choice but to pay more. “We hope to stay because everything is so expensive right now that I would be paying the same whether I was here or anywhere else,” said Ms. Cindrich.

The rental market, which slumped during the pandemic, has rebounded faster than many economists had predicted, and tenants across the country are facing a sticker shock. When the pandemic hit, many people who lost their jobs temporarily stopped renting apartments to live with their parents or roommates. Others fled major cities for health concerns. Apartments have emptied and landlords have begun offering incentives such as a free month to lure tenants.

Now, demand for flats and single-family rentals is picking up – and even looking hot in some places, as people move back on their own or return to cities and office jobs, and current tenants discover they can’t afford a home in the booming housing market. Last month, rents rose 7 percent nationally from the previous year, according to Zillow data. While this was measured against a weak June 2020, the gain was also a strong 1.8 percent increase from May.

“A year later, things are coming back strong and this is recreating housing demand for rental units and occupancy is increasing,” said Lawrence Yun, chief economist at the National Association of Realtors.

If rents continue to rise, it could be bad news for both housing seekers and the country’s inflation outlook. Rental costs play a huge role in the Consumer Price Index, so a meaningful increase in them could help keep the sharply rising government price gauge higher for longer. Rents are only half as important to the Federal Reserve’s preferred Personal Consumption Spending inflation index, but a long high CPI inflation could affect consumers’ expectations for future price increases, which could accelerate them.

Consumer prices skyrocketed fast 5.4 percent But much of that increase was due to the economy reopening due to the pandemic. Policymakers at the Fed and the White House have argued that today’s strong price pressures should subside as the economy returns to normal once the one-off issues driving up used car prices are resolved and a surge in demand that drives up furniture and washing machine costs begins. to reduce.

However, housing costs can come into play here. Rent measures and so-called “owners’ equivalent rent” – which uses rent data to try to put a price on how much landlords will pay for their housing if they haven’t bought a house – make up almost a third Consumer price index. Both tend to move slowly, but defy expectations that it will take time for them to return.

“We’re already seeing owners’ equivalent rents rise quite sharply,” said Alan Detmeister, an economist at UBS and a former Fed staff official. “I hope it gets worse later this year and early next year.”

He and other economists said it’s too soon to say to what extent and for how long rents will support overall prices.

“I think we’re going to see some increase in rents and that will offset some of the declines in commodity categories,” said Michelle Meyer, head of US economics at Bank of America. But the “only way” for rents to rise enough to keep inflation uncomfortably high is “if wages are consistently higher,” he added.

How much landlords can charge, depending on how much tenants can pay. Low-wage workers are seeing strong wage increases, but many economists expect these to decline as the economy reopens.

Another key factor, Mr. Yun said, is “whether home builders are active in procuring new homes and apartments to accommodate this increase in rent.”

The data show: important new supply The apartments are supposed to be on the way this year, but it’s unclear whether they’ll keep up with demand in location and timing.

For now, rental experience differs between markets. In places like Boise, Idaho, rents appreciated rapidly; Spokane, Wash; and Phoenix, while the major coastal cities are left behind, Zillow data. Rents in New York City and San Francisco are improving rapidly, but are cheaper than they were two years ago.

“The rental market has been crushed,” said Jonathan Miller, CEO of Miller Samuel, a local real estate appraisal firm. But the pace of new leases in the last three months has been bidding wars, it reverses it. Mr Miller said he expects rents to fully recover as companies bring workers back to the office this fall and withdraw them from far-flung remote workplaces.

“There will be another wave,” he added. “We just passed the zoom peak.”

Data from a listing site, Apartment List, confirms the apparent trend in Zillow numbers: In 2021 so far, rental prices It grew 9.2 percent nationally, compared with the 2 to 3 percent typical from January to June. According to the most recent data available, there were higher prices than economists on Apartment List had expected had pre-pandemic trends continued.

“Prices will continue to rise in the short term because occupancy rates are so high right now,” said Apartment List economist Igor Popov. He said price increases should be moderate as supply rises, but it’s unclear when that will happen.

Meanwhile, the hot housing market should keep rental demand strong.

“Rents are a lagging partner in home price valuation,” said Nela Richardson, chief economist at employment data provider ADP, who previously worked at real estate firm Redfin. “You have a chronically undersupplied housing market that has been going on for ten years. It won’t run.”

Higher rental costs can have a huge impact on people’s lives. Christine Gitau, 23, of Homewood, Ala, continues to live with her family as she cannot afford the $100 increase to renew the rent of the $530-a-month apartment she started renting last July.

“I am very upset, angry and stressed because of the rent hike,” Ms Gitau said.

Ms Cindrich in Provo, a full-time student at Brigham Young University, worries she will have to apply for more student loans to pay for her apartment or cut costs in other areas.

“I have a serious autoimmune disease and spend hundreds of dollars on medication every month,” he said. “The rent hike probably means I won’t be able to go to my monthly doctor’s appointments.”

This human influence makes rising rents a political challenge, especially as the Biden administration is already fending off Republican attacks due to the inflation boom.

Administration officials say they are monitoring house prices and their impact on inflation. They continue to insist that most of the price pressures in the economy are temporary.

Officials and President Biden himself have pushed for additional spending measures that will over time increase the housing supply and reduce rent increases, housing price increases and inflationary pressures, officials say.

Mr. Biden’s $4 trillion economic agenda includes $213 billion to help quickly launch more affordable housing. Those efforts were not included in the bipartisan infrastructure deal he signed with centrist lawmakers, but could result, at least in part, in a stand-alone spending bill that Democrats plan to push through Congress this summer.

Even if they were successful, these efforts would take years to bear fruit.

Dr. Some, like Popov, expect recent gains to moderate themselves this year. Others said it could pave the way for bigger increases: Many consumers are flooded with cash from government stimulus checks, and the Fed’s cheap borrowing policies are warming the housing market.

“There is a tremendous amount of incentives and I think this has the potential to put upward pressure on rental prices,” said Mr Miller, valuation manager.

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