The only time rent went negative year-over-year was in the Great Recession, even then, just barely. Yet, every month we see reports of falling rent and expectations that it soon will.
I created the above chart today because people keep saying rents will fall due to the massive number of rents under construction.
For over a year we have seen stories saying the price of rents is declining.
The Stories
- CNBC September 8, 2023: Apartment rents are on the verge of declining due to massive new supply
- CNN June 26, 2023: Rent is falling in America for the first time in years
- Realtor.Com July 3, 2023: Renters, Rejoice! Landlords Are Dropping Prices the Most in These 10 Cities
- Money.Com February 9, 2023: Rent Prices to Fall ‘Nearly Everywhere,’ Housing Expert Says
- Bloomberg January 14, 2023: The Apartment Market Is About to Get Ugly
- USA Today March 3, 2023: Rents going down, new study shows.
- KLSTV November 29, 2022: Rent prices down nationwide
- Redfin April 14, 2023: U.S. Asking Rents Post First Annual Decline in Three Years
Headlines Wrong
The headlines all have one thing thing in common: They are all wrong. Even the Wall Street journal is in on the silliness.
February 27, 2023 WSJ: Apartment Rents Fall as Crush of New Supply Hits Market
If you read the stories, they are generally based on asking prices for new rentals or the notion that supply will soon crush demand causing prices to drop.
But asking prices, even actual prices for new leases do not mean prices are falling. The number of existing leases dwarfs the number of people moving.
CPI Rent
Rent of primary residence, the cost that best equates to the rent people pay, jumped 0.5 another percent in October.
Rent of primary residence has gone up at least 0.4 percent for 27 consecutive months!
People keep telling me rents are falling, I keep saying they aren’t (and the data proves it).
For discussion, please CPI Unchanged Thanks to Decline in Energy, but Rent Jumps 0.5 Percent
Let’s now put a spotlight on supply, shown in the first chart, with additional details.
Housing Units Under Construction vs Completed Units
The only time in the history of this data that rent prices declined year-over-year was in the Great Recession. And that was after completed units crashed 76.8 percent from 2.245 million annualized units to 520,000 annualized units.
A year-over-year decline in rent happened exactly once in history, May of 2010. The preceding and following months had no gain. And those were the only two months of zero percent increases year-over-year (lead chart).
Yet, every month we see nonsense about falling rent based on new leases, or soon to be falling rent based on massive supply.
The Prosecution Rests
In Mish vs the Media, rebutting the idea rents have been declining, the prosecution rests.
Rents have not been declining. Perhaps they will after 27 consecutive monthly increases of at least 0.4 percent, but history strongly suggests rent prices are sticky.
However, It will not take declining rents to make the Fed happy. Increases of 2.0 percent would. But even 2.0 percent or less increases are rare (lead chart, dashed line).
Year-over-year rent is up 7.2 percent.
Due to easy-to-beat year-over-year comparisons, perhaps that the year-over-year rate declines rapidly. But that can happen even as rent increases 0.3 percent monthly.
Thus, a year-over year decline to 2.0 percent is not necessarily a good result, just a better one.
The New Residential Construction Report Shows Housing Starts Rise 1.9 Percent
For more on residential construction, please see The New Residential Construction Report Shows Housing Starts Rise 1.9 Percent
NAHB Housing Sentiment and Traffic Head Toward the Post-Pandemic Low
The National Association of Homebuilders survey is one of the grimmest since the Covid pandemic.
For discussion, please see NAHB Housing Sentiment and Traffic Head Toward the Post-Pandemic Low
Existing Home Sales vs New Home Sales
On October 19, I noted Existing Home Sales Drop Another Two Percent to a 13-Year Low
In sharp contrast, on October 25, I noted New Home Sales Jump 12.3 Percent Smash Expectations
New home sales are much better than existing home sales because builders are offering mortgage rate buydowns, build smaller homes, and are cutting back on lot and room sizes.
Add it all up and you are not getting a bargain buying anything today. Blame the Fed for these conditions.
How the Fed Destroyed the Housing Market and Created Inflation in Pictures
For discussion of the Fed’s role in this mess, please see How the Fed Destroyed the Housing Market and Created Inflation in Pictures
The Fed is largely responsible for the Great Recession crash, but this one is totally on them.
Mish Are we actually in a housing shortage. Theres a difference in wanting a house and taking the steps in life to purchase one. I get there may be one where people are moving to. But what about where they are leaving. Boomers passing lowing the population.
It would be interesting to know how much inventory is tied up in corporate rentals from the great recession. Also how much is tied up in air b@b.
Maybe if they can get their cities so unpoliced, so crime, addict, and bum infested that nobody will live there, the rents might drop just a little bit? Nah…. not if the gov will pay it.
As Albert Einstein said: “what science teaches us, very significantly, is the correlation between factual evidence and general theories”.
See WSJ April 29, 2008: Paying Interest on Reserves: an Old Idea With a New Urgency
“Milton Friedman back in 1959 argued commercial banks should earn interest on the reserves they are statutorily required to hold on deposit at the central bank.”
Friedman was only good at math. Required reserves were not a tax, they were Manna from Heaven. Given a dollar of required reserves, the banks were able to pyramid it into 206 earning assets.
Charles Hugh Smith Blog | Bank Reserves And Loans: The Fed Is Pushing On A String | Talkmarkets
Then you have Paul Volcker: WSJ in 1983: that the Fed: “as a matter of principle favors payment of interest on all reserve balances” … “on rounds of equity”. [sic]
It’s backwards. An increase in outside money suppresses interest rates. It lowers the real rate of interest. That’s what boosted asset prices, esp., housing and therefore rents.
Valuations driven from loan collateral (the supply of loan funds/credit), generally depend 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), aka, the Cantillon Effect.
Bernanke “did it again”. It’s tough to catch up from a deficit in construction when you bankrupt half the home builders.
Bernanke thought the GFC was a capital crunch, not a credit crunch.
Bernanke destroyed the nonbanks by remunerating interbank demand deposits at a level that exceed all short-term borrowing (which was illegal per the Financial Services Regulatory Relief Act of 2006 (FSRRA) PUBLIC LAW 109–351—OCT. 13, 2006).
I.e., the nonbanks shrank by 6.2 trillion dollars while the banks were backstopped by the FED, remaining unaffected, expanding by 3.6 trillion dollars.
The pundits are all wrong about the tabulation of the means-of-payment money. The G.6 Debit and Deposit release pointed out where most payments cleared.
Dec. 2004’s money #s weren’t exceeded for 4 years. That is the most contractive money policy since the Great Depression.
As Dr. Richard Anderson said: “reserves were driven by payment’s”. I.e., the monetary base was exclusively required reserves. Friedman’s base included currency, and an increase in the currency component is contractionary.
Bernanke in his book “The Courage to Act”: “Monetary policy is a blunt tool” and “Unfortunately, beyond a quarter or two, the course of the economy is extremely hard to forecast”.
Using required reserves, economic prognostications within one year are almost infallible (i.e., if you can, and want to, do the homework). It’s really a crime. Bankrupt-u-Bernanke should be in prison.
It’s no happenstance that rent hasn’t dropped.
A topic full of scenarios, but to keep it plain and simple I would suggest the following:
– Lots of students are in a lot of debt, and so are their parents. Dorm cost are lower and in many ways, not just monthly rent. They are also more convenient, lower meals cost, easier to study, in control of your space and time, and better for social experiences to name a few.
– As Baby Boomers move on from life, or get rerouted to senior living centers, their homes and apartments are freeing up for rent, purchase, or for the families to use for things just like this. A friend’s daughter just moved in for cost at her deceased grandmothers condo. She will get a roommate maybe, but is all set moving forward. Minus 1 renter, and this is very common place in my area, albeit an older area of the Country by age.
– A lot of college kids blew money for college on cars, trips, clothes, toys etc. This was partially due to no rent having to be paid by many, No college loans to pay, per the Government, and free money, so to speak, just looking for a place to be parked.
– Kids are survivors as they have very little responsibilities to exist. They will happily live in a dorm if they are fed and have a roof. They can spend nights, over the kids that have money to rent apartments, when they feel the need to. Some just like quiet, or take College more seriously.
– Young people that don’t attend college or dropped out, are survivors too. They will live 4-5 in a 3 bedroom with a pull out sofa. They will not blow the limited money that they do have for their own room, and gladly share a room, if it means they can party more.
– Parents are also in trouble financially, and will not simply hand the money over for the kids when they come crying any longer. They simply can’t afford to play super cool parents and/or give in to the ask for money all the time. Those days are long behind many, and drop outs will be another factor hurting rents and allowing more to become available.
– All this adds up to “Lower Cost” but for reasons other than the headlines you referenced. These are real reasons many just don’t see, or want to see.
– Oh, did I mention we are, and have been in a covered up Recession, that is at the level of full blown at this point, but still not being properly discussed or even spoken about as it should be. This will cripple rents once it really hits, and massive layoffs, and massive debt to still be paid down (you can forget about being paid off), but now with penalties if you don’t. The days of not paying for things and being able to get away with it, are quickly disappearing, and the Bill Is Coming Due!!!
IN GENERAL, RENT DOESN’T FALL OUTSIDE OF A RECESSION, AND IT IS SURE AS HELL DOESN’T FALL WHEN YOU HAVE 14M ILLEGAL ALIENS RUNNING INTO AMERICA IN THE COURSE OF 4 YEARS.
THAT’S A FACT, MISH!
Rising rents have a few causes. One is inflation and the other is a surge in population relative to the available housing stock causing a shortage of supply.
I’m sure Bidenomics and 5 trillion deficits will keep inflation at 0% as per the Fed mandate.
And the million plus/month crossing your southern border are just moving on to Canada and the North Pole so won’t be putting pressure on the lower end of the rental supply.
Yes I’m being sarcastic.
Perhaps the only poetic justice is that the scum who took advantage of the eviction moratorium to not pay rent will find it hard to find a new willing landlord to house them when Pedro from somewhere south and a million like him are probably better risks to the landlord to rent to as at least most of them hopped the border to work and can thus pay the rent.
Here in Australia rents are up 18% and availability is under 1%. Doing security on construction sites I get people coming at 2am to ask if the near complete building I’m guarding has apartments available and last month I was guarding a building on the day it was handed over from the builder and 4 families moved in that same day. The kicker is I overheard an agent mention the rent on a 2 bedroom as $2300. Rents here a weekly so in USD monthly terms that is USD7000/month. How do people afford that even for a nicer suburb?
The public does not understand how these experts work:
Newspaper and TV reporters are paid to get eyeballs to attract advertising revenue. They are NOT paid to be accurate.
Wall Street analysts are paid to write stuff that will compel clients to call and place trades. They are not paid based on accuracy.
Homeless charities are paid based on the number of homeless people “served”. They are not paid to reduce homelessness.
Medical researchers compete for grants “awarded” by health bureaucrats who advance in their career by making politicians look good. If they reported that all diseases were cured, there would be no need for researchers or health bureaucrats — they would be out of a job, their careers ended.
Dept of Commerce, Treasury Department and Federal Reserve bureaucrats advance in their field by pleasing the politicians who set budgets. They are not paid based on accuracy. If the economy was going along as well as it did before 1915 … there would be no need for all the central economic planners. They would all be out of a job.
When a government economist knows their career advancement is tied to the incumbent party getting re-elected… of course the economy is doing awesome. What other answer would preserve much less advance that economists career?
Excellent Post!
I just gave long term resident pay rent or evict
don’t care – IT IS MY PROPERTY
Rents are stable in our area – just not rising like before
just had owner of 20+ unit here from california
asked rent said $650 for small jr. 1 bed
smiled
more to come in 10%+ ROI world of previous hard asset owners
“DON’T ZIONIZE ME BRO”
Rents are increasing at about 8% yoy, while the majority of people owning rentals reduced their mortgage payment by multiple percentage points, through refiniancing in 2020. The greed and price gouging is unreal. The economy needs a true recession to clean out the misallocation of capital throughout the economy and reset pricing. The zombie corps need to Rest In Peace rather than being given continuous life support, just to feed on the brains of the real economy.
But Klaus said: you will be renting and be happy. Is he a scam artist?
Real Estate Zionism, Eco Zionism, Electric Car Zionism, and Equity Zionism, can not persist. 98% of the world does not like Zionism. Only the 2% who want something for nothing like it.
The first taser in History may have been a rock As the rock came crushing down on Abel his final last words may have been ‘Don’t Zionize Me Bro”
Cain and Abel both presented Sacrifices to the Lord. One was vegetables offered by Cain, and the Other was all Abel had to offer, a innocent lamb
Cain worked hard for his cornucopia, but Abel did what he could and sat around just in case he needed to protect his flock.
Cain’s sacrifice unto the Lord was not accepted because it was from his hard work. Abel’s sacrifice was acceptable because it was all that he had to offer.
This story represents the two covenants; Earning your way to Heaven, or accepting your atonement with God by the Bestowment, Sacrifice, Blessing, and Forgiveness of God.
Galatians 4:22-31
King James Version
22 For it is written, that Abraham had two sons, the one by a bondmaid, the other by a freewoman.
23 But he who was of the bondwoman was born after the flesh; but he of the freewoman was by promise.
24 Which things are an allegory: for these are the two covenants; the one from the mount Sinai, which gendereth to bondage, which is Agar.
25 For this Agar is mount Sinai in Arabia, and answereth to Jerusalem which now is, and is in bondage with her children.
26 But Jerusalem which is above is free, which is the mother of us all.
27 For it is written, Rejoice, thou barren that bearest not; break forth and cry, thou that travailest not: for the desolate hath many more children than she which hath an husband.
28 Now we, brethren, as Isaac was, are the children of promise.
29 But as then he that was born after the flesh persecuted him that was born after the Spirit, even so it is now.
30 Nevertheless what saith the scripture? Cast out the bondwoman and her son: for the son of the bondwoman shall not be heir with the son of the freewoman.
31 So then, brethren, we are not children of the bondwoman, but of the free.
No longer is the child of promise by genetics, but is by faith. The child of the bond woman is also not by genetics either, but is by lacking faith and pursuing the flesh, WEALTH, MONEY, STOCKS, BONDS, OIL, REAL ESTATE, CARS , AUTOMOBILES, HOMES.
So interesting that the Covenant presented in Sinai was an attempt of an unattainable perfect flesh, and the covenant presented at the cross was ” Come as you are, The Almighty Loves You.”
“DON’T ZIONIZE ME BRO”
Going put in an offer for an older home investment property tomorrow. I plan to rent it for slightly cheaper than a two bedroom apt and work on fixing it up in the meantime to sell. Property never goes down around here. Not even in 08. The housing market here is bullet proof. Tired of the market and the stupid bond market. Getting out of all of it. All a sham.
You must be living in Canada..or what’s left of it, where property only goes up and up.
Many areas like the one I’m buying in around the country. Large lots, old homes in good to fair shape that are still reasonably priced. The youth however scoffs at these homes as dated and stay with mommy and daddy. Those days are ending. Can’t stay there forever. Starting to see this happen right now of younger people getting off their high horse and pushed into reality.
I have a solution for cheaper housing. Simply remove the concept of using loans to buy them. Get rid of all lending and you will get massive deflation in all things. The same could be done for health insurance. Get rid of insurance and force pricing transparency. Sure things would be ugly for awhile but then things would settle to a new equilibrium.
1) Rent is 2K/M, 24K/Y. In the next 10Y rent increases might be 5%/Y on average. Rent accumulation should be 300K in ten years.
If today’s house prices are : 500K, within ten years their value should be : 500K + 300K = 800K.
2) After a deep recession, rent accumulation might be : 24K x 10 years : 240K, before expenses. The value of your house should be 740K in nominal terms.
3) If the expected price is 600K, or less, today’s prices are too high.
4) If in the next ten years the RE bubble will deflate, along with the vertical rent, the 3%/4% mortgages wouldn’t matter during a systemic change in the RE sector.
My theory is that somehow people’s understanding of inflation has somehow shifted from the rate of inflation to the rate of change of inflation. Inflation has been confounded with prices. Thus, 2% to 2% is now no inflation, 2% to 4% is rising prices, and 4% to 2% is falling prices, but nobody understands the concept of “zero inflation” any more. The government will thus spin it as if when inflation falls from 8% to 6%, prices are somehow stable or falling and there is nothing to worry about.
It is so bad that when the Fed describes inflation as “transitory”, people hear that he said prices will rise and then fall back down again. What they really mean is that the rate at which prices are rising will stabilize at a higher level. Or as a best case scenario prices will stabilize at a higher level. By no means are they saying prices will ever come back down. The best case scenario is the rate at which they are increasing comes down, but I think our hopes there are optimistic as well.
And real interest rates are still negative, which is inflationary.
I will say this about this situation…
I live in a desirable, yet historically relatively affordable Eastern US housing market.
The price of homes has exploded in the past 3 or so years, up about 50%.
The trend for this area going back decades shows average rent usually hovering about 5-10% above the average monthly cost of homeownership for new owners. For the past couple of years this has completely flipped the other direction. It is now about 40% more expensive to buy than rent.
This seems like an untenable situation. Either house prices have to crash or rents need to rise materially to arrive to some kind of long-term economic equilibrium. We aren’t talking about stocks where people are willing to defer income for decades thanks to expectations of future “growth”. This is about folks needing to obtain shelter in the present. Anyway, it is difficult to see an upside down situation like this persisting in perpetuity yet it shows no signs of relenting.