Economy update

Bidding Wars in the Hot Rental Market, Not Reflective on the Consumer Price Index.

The consumer price index is another tool to measure inflation. Rent and ower’s rent cover housing costs are about ⅓ of the CPI. In July, the consumer price index rose 0.5%, below 0.9% from June. Year over year CPI rose 5.4%. With a shortage in the housing supply,  bidding wars in the rental markets will continue. The rents will continue to increase, which will increase the CPI well into the future.

Per CNBC, the private sector reports double-digit increases in rents across the US. However, the CPI only showed moderation rental gain. The Bureau of Labor statistic data is possibly lagging and will catch up. This means in the next few months, the CPI will continue to increase. The reported rate of increase will be lower than the actual rate.

Per Bleakley Global Advisors chief investment officer, “The rent component is dramatically understated relative to reality, which means in the next couple of months, rent is going to catch up…Rental increases, which is the biggest chunk is only going to accelerate here. I don’t see rent increases as transitory.”

Based on Apartment List National Rent, the report showed a rise of 2.5% in the cost of rent from June to July. This is 11.4% for 2021 so far. There are four more months in 2021, so who knows how much more rent will increases.

Yardi Matrix showed that multifamily rent increased 8.3% year-over-year, and single-family rents increased 12.8%. Because of how the Bureau of Labor calculates the rents and CPI, the rent increases are expected to show up in later months.

Vacancy rates are lowest over the past 35 years, per Mark Zandi, chief economist of Moody’s Analytics. Home has been in short supply. Since the last housing bubble, fewer homes were built, contributing to the short supply.

In July, rents nationally rose 7% for one-bedroom apartments and 8.7% for two-bedroom apartments. Single-family homes are experiencing a surge as well. If we look at different estimates, rent price has increase about 7-13% compared to a year ago.

Some landlords raise rents to offset losses from the covid eviction moratorium, and the market supports the increases. With less affordable housing and fewer options on the market, the price will continue to soar. Price will increase until renters can no longer support the increase.

Not only are homebuyers outbidding each other, but renters are also outbidding each other. Outbidding is leading to a surge in the housing and rental markets. Are we in another housing and rental bubble?

The economy is re-opening, and people are moving out of shared homes. With people working, they will need to be near their jobs and pay higher for the location. These renters have higher credit scores and are willing to put down more security deposits. Multiple renters tour one apartment and are ready to submit applications. Hence, there is more bidding.

“Strong job and income growth, as well as fierce competition for for-sale housing, is fueling demand for single-family rents,” Molly Boesel, principal economist at Core Logic.

Rent inflation will not be transitory. Rent inflation will increase the CPI. The inflation in the US will continue.

 

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