If we are not building enough units to handle population growth including illegal immigrants, we are going to have a serious rent inflation issue making the Fed miserable.
I created the above chart by subtracting housing completions from housing starts. 18 months ago completions began outpacing starts.
Negative 300,000 was the most negative since June of 2010 at the end of the Great Recession.
Bear in mind these are seasonally adjusted annualized rates (SAAR).
Unadjusted Housing Starts and Completions
The unadjusted number of starts in May of 2024 was 117,000. The Commerce Department reports that as 1,277,000 SAAR. Completions SAAR were 1,514,000 yielding a difference of -237,000 shown in the lead chart.
Housing Starts Minus Completions
On an unadjusted basis completions have outpaced starts for 10 consecutive months. Numbers range from 1,000 to 38,000.
Housing Units Under Construction
There is a massive number of housing units under construction, most of which are multi-family.
Single-family units under construction is in a range that on average looks normal. Multi-family is another matter.
Housing Starts Single-Family vs Multi-Family
The above chart shows we can expect completions to outpace starts especially multi-family.
Is the Pipeline Big Enough for Rents to Drop Substantially?
That’s the key question.
For three years now economists have been expecting the cost of rent to decline? However, for 33 consecutive months the BLS reports rent has gone up at least 0.4 percent per month.
The CPI is Flat for the Month, but Rent is Up Big Again
On June 12, I commented The CPI is Flat for the Month, but Rent is Up Big Again
Owners’ Equivalent Rent and Rent of Primary residence were each up another 0.4 percent in May.
That marks the 33rd consecutive increase of at least 0.4 percent for both.
I expected a flat CPI this month with rent and OER pulling back a bit. Had they fallen, we would have had a negative CPI.
At some point this year, I believe rent will abate. If not, the Fed is going to have one heck of a time bringing down the year-over-year CPI currently 3.3 percent.
My May 15 Rent Comments
The “rents are falling” (or soon will) projections have been based on the price of new leases and cherry picked markets. But existing leases, much more important, keep rising.
Only 8 to 9 percent of renters move each year. It’s been a huge mistake thinking new leases and finished construction would drive rent prices.
Most leases renew in May through August. I expect rent to moderate soon.
Unlike most other analysts and economists, it’s only in the last two months that I finally started to expect rent increases to abate.
Rent abatement appears to be happening in select cities like Austin that seem hugely overbuilt, but it has not shown up nationally yet.
Is the Rent Pipeline Big Enough Nationally?
The deflation, disinflation, Fed needs to cut rates now crowd has been incorrectly singing that tune for over two years.
However, the Wall Street Journal had an interesting post a few days ago. Please consider Rent Hikes Loom, Posing Threat to Inflation Fight
Apartment dwellers got a break recently when rent growth slowed and fell in parts of the country following years of steep increases. That relief appears to be ending.
Rents in several Northeast and Midwest cities, such as Kansas City, Mo., and Washington, D.C., are rising this year.
While asking rents for new leases nationally are running nearly flat over the past 12 months, those figures are heavily influenced by the Sunbelt, where record-high supply has turned rent growth negative in some cities, according to most property data and brokerage companies that track them.
The least affordable home-sales market in decades is compelling more renters to stay put. Large apartment owners say fewer renters are moving out to buy homes than ever before, put off by record home prices, limited inventory and higher mortgage rates.
“Rental demand is definitely rebounding,” said Igor Popov, chief economist at the listings website Apartment List. “We’re past the bottom.”
Strong job growth has also opened the door for landlords to raise rents. “That gives them pricing power,” said Linda Tsai, a real-estate equities analyst at Jefferies.
Rising rents complicate the inflation picture and could make it challenging for the Federal Reserve to ease interest rates. Labor Department data showed that inflation was cooler than expected last month, but the prospect of more apartment owners raising rents could offset lower prices in other areas.
Truflation Nonsense
The “rents are falling” consortium keeps pointing to Austin. But it’s much more complex than the sunbelt.
And for years I have been pointing out the fallacy of judging the rental market based on new leases.
Apartment List, Zillow, and Redfin all make this major mistake.
So does Truflation which ridiculously claims the year-over-year rate of inflation is 2.15 percent as of today.
I discussed Truflation and what’s wrong with it on April 20, in my post Truflation Claims Inflation is 2.06 Percent, Anyone Believe That?
Would you believe believe year-over year inflation is barely over two percent? That’s the Truflation claim as of April 17, 2024.
The idea that you can take inflation, exclude the price of houses, essentially ignore renters, use new leases rather than renewals and concoct inflation at 2.15 percent is ridiculous.
Truflation purports to be more timely. OK, it’s more timely nonsense, revised daily.
Why Angry Renters Will Decide the Election, Take II
Economists say wages are now rising faster than the CPI. That’s not true for those who rent or wish to buy a house.
Those Who Rent Are Angry
Roughly 36 percent of households rent. They watch home prices soar out of sight while wages do not keep up with rent.
Yet economists tell these renters they should be happy because wages are now rising faster than the CPI. Sorry guys, wages are not rising faster than the average renter’s personal CPI.
And housing prices are not even in the CPI.
For discussion, please see Why Angry Renters Will Decide the Election, Take II
The BLS weighs rent at 7.61 percent of the CPI.
Tell that to renters looking to buy a home. Those who rent are likely paying 20 to 40 percent of their salary towards rent, certainly not 7.61 percent.
At least 26 percent of the nation thinks the way we calculate the CPI is nuts. Truflation, supposedly an improvement, compounds the errors.
My lead question remains: Are We Building Enough Housing, In the Right Places? Too Much?
If rent and the price of houses are not enough to make a huge subset of the population unhappy, here’s an added bonus:
Job Openings vs Unemployment Looks Very Much Like a Recession Has Begun
The block of apartments under construction is enormous.
It better be enough to slow rent and deal with 8 million illegal migrants who need shelter, or the Fed is in serious trouble.
There definitely seems to be a mismatch between where more multi-family units are needed and where they are being constructed. One just needs to look at metro area vacancy rates vs. units in the pipeline to see that developers seem to be crowding in metros where the vacancy rate has shot up, while building very little comparatively in some of the metros with the lowest vacancy rates.
Herd mentality I guess.
“Are We Building Enough Housing, In the Right Places? Too Much?”
Whenever “we”, in aggregate, build/make enough of something; in a world with ANY uncertainty; people WILL BE fire selling some of the newbuilds. While at the same time throwing away/abandoning/giving-away-to-anyone-willing-to-take-it-off-their-hands older, used, now less attractive previously built units.
Until that is the case, “we” are not even close to building enough houses.
Heck, “we” don’t even have as much as a single house per capita yet. Despite pretty much everyone I know who can afford to, revealing clear preference for at least 2, often 3 or more houses. And that even includes “regular” people, who ostensibly would have to do the maintenance and upkeep themselves.
And as for “right places”, are you even being serious? The count of people who would like to live in San Francisco, Malibu, Beverly Hills… versus the number of houses there has got to be 10 or 100 to 1.
At least in CA, you’d not be off by much if you assumed that out of the grotesquely low number of houses that actually are being built at all, virtually all are specifically built in the very places where demand for them would be the lowest, if free-market alternatives were available. Just like the Newsom Gang’s similarly totalitarian dream for cars: Ban the ones people really want. Then; ostrich like; insist the grossly inferior and overpriced junk they are forced to settle for, is some form of real substitute.
The country needs to deflate itself on all levels. From food to housing to you name it. Instead of surviving on the downfall of one another.
Uh no.
What country needs to do is grow its’ way out of the problem created by Bad policy decisions.
USA has everything it needs to do so except the Political willpower to stop bleeding out the productive so as to placate the non productive.
Rebuilding the middle class. Those are the people who are not obsessed with chasing fiat money as their be all and end all.
“What country needs to do is grow its’ way out of the problem…”
The only way to do that, is to first deflate away the gross misallocations made possible by the inflation. IOW: Acting on Mellon’s 1929; bang-on then, near infinitely more so today; advice wrt how to ensure competent people can once again; after all these years of being nothing-but-robbed-for-the-sole-benefit-of-utterly-incompetent-charlatans; once more have the opportunity to pick up pieces they can competently rebuild value; and a country; from.
There is no other way. We’re 3rd worlders now. Just like for Argentina, it’s a long way back to anything even half worth vile.
Remove loans as a way to pay for housing and prices will drop to levels of affordability. Like insurance, loans are the biggest inflator of prices. Housing should actually be a depreciating asset over time bc of the maintenance involved. It is the opposite bc of the banking industrial complex.
Asset valuation prices are driven from the appraisal of loan collateral, and loanable funds, which depends upon Gresham’s law: “a statement of the least cost “principle of substitution” as applied to money: that a commodity (or service) will be devoted to those uses which are the most profitable (most widely viewed as promising), that a statement of the principle of substitution: “the bad money drives out good”.
…
Link: “HOUSING IS THE BUSINESS CYCLE” Edward E. Leamer
https://www.nber.org/system/files/working_papers/w13428/w13428.pdf
Low-cost housing; like low-cost hospitalization won’t exist in the US.
It cannot be imported from $10/day third-world countries like car-parts and electronics.
More pre-fab will help but until we can pre-fab electrical/plumbing in Mexico we’re stuck.
Windowless dorms in Austin are a interesting cost-savings…soon to be outlawed.
https://www.kut.org/austin/2024-04-17/developers-have-built-thousands-of-windowless-bedrooms-in-austin-now-the-city-may-outlaw-them
We have an oversupply of housing but the housing stock is mostly targeting:
What is lacking is:
If you want a NYC apartment, there is one available for 300 million by central park. There is a market and a supply BUT ITS THE WRONG MARKET. Not everyone is a Chinese industrialist looking to park money in assets
OR
Blackstone or Blackrock looking to squeeze rental supply and make a fortune
In a free market, all of those things would sort themselves out via price discovery, bankruptcy and other mechanisms. Unfortunately, the housing market is currently being propped up by a lot of un-free-market forces. Young renters especially are shooting themselves in the foot by voting for Biden, as Mish points out, the illegals need to live somewhere and they can, and do, compete for shelter.
Of course the illegals need to live somewhere. That would be the countries they come from.
In the small city of my legal residence, there are zero homeless. You can buy a building lot complete with water, sewer and electric, for around $300. There is no zoning, no building codes. You can build a brick shell and put a roof on it for around a thousand dollars, then put on doors and windows later and a concrete slab floor. Later on add a bathroom. If you get rich you can cover with stucco and paint the walls, tile the floors.
The USA was deliberately designed to make poor people suffer needlessly……quarter acre lots are a sin against humanity, street layouts and strip malls, banning little mom and pop stores except in select locations, separating stores from residences, all of that makes everything more expensive and inconvenient…….
Where in Zimbabwe do you live?
I don’t think many landlords (except for slumlords) want to rent to illegals. Landlords want qualified renters with good credit and job stability. Illegals don’t usually have a credit history and certainly don’t have job stability.
The gobernment will guarantee payment and damages (like they’re doing with the hotels in NYC). Supercharged Section 8!
Exactly, the taxpayer is currently generously covering every single “problem” associated with the housing of illegals. Anyone that thinks that wide open fire hose of spending doesn’t have ripple effects throughout the entire shelter (and lodging) markets is a loon.
We are definitely not building enough affordable housing and given the number of gizmos in new houses, they are a time and money pit if you care about keeping it well-maintained.
“Anger is an energy”. — PIL, “Rise”
Housing should be increasing as the baby boomers pass on.
Yes immigrants need housing.
There are other factors to consider.
50 percent divorce rate prob scatters family into two units.
The hedge funds buying up properties in 2008 crises.
Air b and b rentals.
they are building something like 10000 homes in my part of ca. i wonder where the water is gonna come from. What if anything pge is doing to anticipate energy usage. Beside rate increases.
BLS rent cpi bs : OER northeast + OER midwest + OER south + OER west +…
Why transactions and the multi starts are falling. Why completed and available for sales are rising. Recession ?? Are the HB renting instead of selling. Are they becoming landlords to collect dividends. HB are mfg. Their maintenance cost is the cheapest. Renters are retail. Nothing between them. HB want to grow assets that produce cash flow. The pool of new renters is larger than the shrinking pool of home buyers. Starts are falling to prevent rental deflation and to test this system. Historically HB had to sell their products within few months, keep the leftovers and a few empty lots.
Rental housing continues to age. Housing that was built as recently as year 2000 now has 24 years of sun and weather damage to roofing and exteriors.
Sunbelt roofs age fast. Thirty year rated roofing needs replacement 15 to 20 years after installation.
Maintenance Prices for landlords have skyrocketed. They either must raise rental charges or sell units for whatever they can get. Either way Rents will not be going down for very long even if there is a liquidation phase that comes about as consequence of mortgage finance charge increases.
Statistics treat Housing as if it were a nonperishable entity. Obviously Housing is dynamic and requires constant upkeep just to stay as it is.
Rents not coming down should be taken as evidence that the way it gets measured is flawed analysis.
and they are borderline rioting in NYcity because landlords might get a 2.5% rent increase or 5.6% 2 yr increase.
Not much incentive to become a Landlord and make a long term commitment in NYC for the people who do the things you suggest.
I am from east of NYC and local building permits run $1 per sq ft.and more, so just to file for permit can run 2,500 to 3,000 for a basic home.
Cheapest building lots in region start at 180,000 and go up from there.
Areas that formally were blue collar starter home communities asking 300,000 for 1/3 acre, just for land.
The incentive is that it is not NYC and people can still raise a family and walk the local streets without getting mugged. Summers here can be spectacular.
Mish,
Thanks for working on the “Where the hell are the completions?” mystery.
As I posted earlier, it is very troubling to see the disconnect between starts (which influence other builders’ plans) and actual, reasonably timed completions (as in, houses/apts people can actually live in, raising supply, lowering rents).
If the permitting process/starts definition can be gamed by head-fake builders, then everyone (including the Government) can make bad, bad decisions (we’ve seen this horror movie before, in other guises).
The cumulative shortfall of completions relative to claimed starts is getting to be unnerving in both quantity and duration.
Lots of pre-construction condos and other pre-planned projects for townhomes and housing coming to fruition (or NOT) based on plans that were launched and land entitled before the Interest Rates were jacked up so quickly. Buildings that are newer / A Class can afford to offer two months “free” rent to lock in people for 12 or 13 months in order to sell off the Multi Family rentals pre-leased.
Order rental buildings don’t have the same luxury. Most landlords do NOT want to spend a lot of money upgrading their properties, so can keep the rent similar or smaller increases.
Nearly the entire Sunbelt, where the majority of the population is moving or being born) has discounted rents for NEW Tenants.
Cheers!
In the right places? How in the hell is anyone going to know when the right “places” is when our own government is shipping people around the country under cover of night?
Stupid easy to know. The entire migration pattern is to the South / Southeast / Southwest.
There’s a reason BOTH Dallas and Houston are going to pass Chicago in population.
Weather-wise, land cost-wise and Tax wise many people have headed South.
LMAO. How true………they were doing this 3 years ago at Westchester County airport. Denied by all the liberals until you couldnt hide the live bodies anymore
“If we are not building enough units to handle population growth including illegal immigrants…”
They’re in the country ILLEGALLY so why the hell should we provide them with anything let alone a house?
Because they work hard and pay their rent on time? There is no “we” in this. Just two people transacting business.
Because they’re NOT actually illegal, this is just Republicans crying about people seeking asylum. Whether they stay or not long term, they have multiple years to wait for their cases and hopefully can fill some of the crappy jobs that people already in the US don’t want. Almost no Americans WANT to go work in Slaughterhouses or Chicken Processing Plants for obvious reasons. Most don’t want to clean toilets or cook burritos or burgers at fast food restaurants.
Whatever happens, there are houses needed to do the stuff most of the people on this thread aren’t going to do themselves.
You can’t request to seek asylum unless you request asylum in EVERY country you went through before you got to the US and were denied. I’ll bbe 99.9% of these people didn’t request asylum in any other country before coming to the US.
But many illegals arrive directly from their home country. Look at all the Afghans who sailed from Kabul harbour to the US. Yes I’m being sarcastic as they went through countries like Pakistan where they would be safe but without the work/welfare opportunities that the stupid western countries offer.
This may have been mentioned by the web host or by someone else, but lots of existing homes are unoccupied and/or being used as “investments.” Some are rented out at ridiculous rates, and some just sit empty. It’s a side effect of zero percent rates from 2006-2020, where “connected” rich people, hedge funds and private equity borrowed hundreds of billions over 14 years at zero percent (the money never had to be paid back). In addition to buying up stocks (all time high), bonds (all time high), farmland (very expensive), businesses, apartment buildings, commercial property .. whatever … THAT is why there isnt enough housing, and it will take several years of above zero interest rates to make all that property too expensive to keep anymore. But instead watch the 2025 rates to be back at zero to keep the plates spinning …
Sorta makes some limited sense…but the carrying cost (even at ZIRP era rates) of idle, empty housing is pretty damn high (property taxes, insurance costs, upkeep costs, opportunity costs at unZIRP Treasury rates) – not to mention the fact that overvalued assets (especially highly levered overvalued assets…like housing) are always primed for panic selling.
And while ZIRP era borrowing was criminally cheap…it wasn’t actually zero.
High carrying costs or not, I know a plethora of people with unrented, rarely occupied, extra homes. The older you are, the more of these people you know.
This is true. I bought a couple. Nobody living in them but I’m not some hedgefunder or real estate tycoon. I actually bought them because of those people. They were wrecking my neighborhood. I’m renovating them to sell at a reasonable price (not renting) but not anytime soon since I’m doing most of the work on the side in my spare time. I’m actually part of the solution.
and blackrock owned, air B&B………
Bulloney. You clearly don’t own a lot of property.
Other than commercial / office, that’s completely NOT the case, there’s not enough housing. If there was, the rents wouldn’t go up and the housing market would have crashed, like we saw in 2006 through 2010.
Having owned large numbers of multi-family units, there’s definitely NOT enough in many areas. Austin and a couple overbuilt markets being the exception.
Then you can tell me where all that free money over 14 years went. It went into stocks, it went into bonds, it went into corporate buyouts cutting the NYSE from 7000 to 3500 stocks, it went into everything else, but it DIDNT go into buying houses?
There are A TON of Hispanics in middle America, in towns they never used to be.
According to the liberal media, someone on the left said the illegal immigrants are leftist/socialist and that’s why they are being imported, to change the dynamic of America and what better place to start then small town America?
Ok, but how exactly are they paying the inflated rents?
I mean that honestly, as I sit here in Alexandria, VA, wondering at the astronomical number of first generation Ethiopians who somehow manage to pay $3000+ per month rents in the DC area.
How? What jobs are they getting (as 1st generation immigrants) that could cover that Top 5 metro nut?
Are there federal support programs that *nobody* is pointing out?
? How many Ethiopians contributing to the rent live in each unit? Is it 5 or 7 or 9?
3 to 4 is usually good enough, depending on where they live. Crappy old apartments are better than where many came from. So they don’t need fancy furniture or luxury apartments.
Same for Mexicans in CA.
They’ll likely have 3 to 4 working age people per $3,000
Rental. They will often work multiple jobs and may start a family business.
Similar to many first generation immigrants over the past two centuries.
Take the jobs nobody else wants and work your butt off. Start your own business or pay for your kids to get into a college so that they can get a STEM job and make more per year than you ever did.
This has been happening for a couple hundred years.
Illegal immigrants are fleeing leftist/socialist countries in mass. Cuba, Venezuela, Nicaraqua, etc… These people are some of the most pro-capitalism, pro-democracy, pro-America people you will ever meet. Never believe “someone on the left” in the “liberal media”.
Yeah, except that’s silly because Hispanics / Latinos tend to be MORE conservative and MORE religious than the average American. Many are Catholic and have conservative family values.
And India Indians and Asians too.
Growing up in Canada in the 70’s and 80’s going out for Mexican food was unheard of. There just wasn’t any such restaurants (other than Taco Bell) even in larger cities (never mind small ones of 35K population that I grew up in). We had Chinese and Italian of course but that’s pretty much it (no Indian either) for ethnic food restaurants. Now its hard to imagine a smaller town (say 20+K) that doesn’t have all those places along with the people from those countries who owns and run them.