FROM ENERGY and from used cars to wages and shipping costs, the list of factors driving up US inflation is growing rapidly. Could housing be next? According to figures released on October 13, the consumer price index (CPI) increased 5.4% in one year to September. Its housing component rose 3.2%, up from 2.8% during the year to August. And he still has to run.
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The shelter has the greatest weight in the CPI, representing 32% of the basket of goods and services used to construct the index. The component is divided into two main categories: regular rents paid by tenants and the imputed cost of living in owned accommodation. Although house prices rose 20% in the year through July, they do not directly fuel the economy. CPI. Indeed, statisticians treat home purchases as an investment rather than consumption. Instead, they capture homeownership by estimating “owners’ rent equivalent,” the amount a owned property might earn based on nearby rentals. The rental market is therefore the engine of housing inflation.
During much of the pandemic, housing rents and inflation have been depressed. But there are two reasons to believe that the latest hike in housing costs will continue. The first is the expiration of the moratorium on government evictions. The policy had helped tenants stay in their homes in 2020, even though the closures were preventing some from working. Many tenants also negotiated lower rents during this time. Now that the moratorium has expired, Goldman Sachs, a bank, expects about 750,000 evictions by the end of the year. This could lead to higher rents. The biggest increases happen when a new tenant moves in, says Randal Verbrugge of the Federal Reserve Bank of Cleveland. Rents on new leases are up 17% from what the previous tenant paid, suggests RealPage, a rental site.
The second reason that housing inflation could rise further is that market prices are only slowly being passed on to the inflation figures. Landlords tend to charge more rent when the value of their property goes up, but with a lag. Increases in new rents also take time to show up in consumer prices, as leases tend to be for one year, and CPI samples rents only every six months or so. President Joe Biden’s Council of Economic Advisers estimates that a one percentage point increase in house price inflation results in a 0.11 percentage point increase in the housing component in 16 months.
A one-time rental measure, published by Zillow, a real estate site, is up around 10% over the year. Further increases could follow as new leases are signed. Laura Rosner-Warburton of Macro Policy Perspectives, a research firm, expects housing inflation to climb to 4-6% by the end of 2022. This would contribute 1.3 to 1.9 percentage points percentage of headline inflation, double its average contribution during the decade preceding the pandemic. The next inflationary force could be local. ■
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This article appeared in the Finance & economics section of the print edition under the title “Resurgence locative”