For well over two years, economists and analysts said rent was declining or soon would be. But for the 28th consecutive month rent and OER were up at least 0.4 percent. 
Yet Another Groundhog Day for Rent
I repeat my core key theme for over two years now. People keep telling me rents are falling, I keep saying they aren’t. I thought this may finally be the month the rent trend breaks but it wasn’t.
Rent of primary residence, the cost that best equates to the rent people pay, jumped another 0.5 percent in December. Rent of primary residence has gone up at least 0.4 percent for 28 consecutive months! [Note: somewhere along the way I got off by a month. Last month I said 28 months but it is 28 months this month].
The “rents are falling” (or soon will) projections have been based on the price of new leases. But existing leases, 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.
Moreover, some of the alleged declines failed to take in seasonal adjustments. Most people move between May and September. It’s harder to fill a lease in December pressuring rents in the winter.
Let’s tune into the BLS Report for the more details.
CPI Month-Over-Month Details
- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in December on a seasonally adjusted basis, after rising 0.1 percent in November.
- The index for shelter continued to rise in December, contributing over half of the monthly all items increase.
- The energy index rose 0.4 percent over the month as increases in the electricity index and the gasoline index more than offset a decrease in the natural gas index.
- The food index increased 0.2 percent in December, as it did in November. The index for food at home increased 0.1 percent over the month and the index for food away from home rose 0.3 percent.
- The index for all items less food and energy rose 0.3 percent in December, the same monthly increase as in November.
- Indexes which increased in December include shelter, motor vehicle insurance, and medical care. The index for household furnishings and operations and the index for personal care were among those that decreased over the month.
CPI Year-Over-Year
CPI Year-Over-Year Details
- The all items index rose 3.4 percent for the 12 months ending December, a larger increase than the 3.1- percent increase for the 12 months ending November.
- The all items less food and energy index rose 3.9 percent over the last 12 months, after rising 4.0 percent over the 12 months ending November.
- The energy index decreased 2.0 percent for the 12 months ending December, while the food index increased 2.7 percent over the last year.
- Rent of primary residence was up 6.5 percent outpacing wage increases.
Rent vs Owners’ Equivalent Rent
OER stands for Owners’ Equivalent Rent. It is the price people would pay to rent a house unfurnished, without utilities.
People keep repeating the myth that OER is based off the question “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
That is false. Rather, that silly question is used to help set CPI weights, not prices. Prices are real measured prices of rent.
Real Measured Prices
Based off minor imputations, some claim OER is not a “real price”.
However, imputations are so minor that the correct attitude is “So what?”
CPI Weights and Other Issues
Rather than bicker over the measured price of OER, the far bigger issue is weight. OER is the single largest component of the CPI with a weight of 26.018 percent as of December 2023. Rent of Primary Residence is 7.714 percent. Shelter comprises 35.170 percent.
Do people pay OER? No they don’t. That’s what’s “unreal”, not the measured price. Roughly 64 percent own their own home with 36 percent renting.
The people who own their own home do not pay rent, they pay a mortgage. Most refinanced at or near 3 percent.
Some economists want to strike OER from the CPI on this basis. The problem I have with this discussion is that “Inflation matters” not just “consumer inflation”. Thus home prices matter. Asset bubbles matter.
The 36 percent of the people who do rent have been royally screwed by Fed policy that inflated assets, especially home prices, in turn causing rents to soar.
The CPI is totally screwed up as a measure of inflation and ignoring OER does not address the issue.
Finally, I expect inflation to be sticker than the Fed believes because when the Fed slashed rates to zero and mortgage rates dropped to 3 percent those refinancing had extra money in their wallets every month going forward.
Why Predictions of When the Price of Rent Will Fall Have Been Wrong
For further discussion of the rent setup, please see my January 1, 2024 post Why Predictions of When the Price of Rent Will Fall Have Been Wrong
I address seasonality, five different measures of rent, and how the BLS smooths things out.
Why Are Americans in Such a Rotten Mood?
Those who do rent, most likely the lower economic groups, have been royally screwed by Fed policy.
This addresses the question Why Are Americans in Such a Rotten Mood? Biden Blames the Media
People can cut back on some things but rent and food are not in that list.
For the 36 percent of the nation that rents, Bidenomics has been a complete disaster.
Is the BLS Is Overstating Rent and Exaggerating Inflation?
On December 7, I investigated A Curious Claim that the BLS Is Overstating Rent and Exaggerating Inflation
I provide solid evidence that the BLS has been doing no such thing.
Nonetheless, assume inflation slows along with rent. At some point it’s bound to happen.
The key question then becomes: Was inflation transitory or is it the easing that’s transitory?
The extra money home owners have in their pockets, coupled with Biden’s regulations, the end of just-in-time manufacturing, and totally inane energy policy all suggest it’s the current easing of inflation that is transitory, not the initial spike.
Did everyone catch the $510B deficit in only the first three months of FY ’24? D@MN!
National Deficit | U.S. Treasury Fiscal Data
And $1T of treasuries are up for auction this quarter alone. So what’s the chance that the Fed pivots happens not because of a slowing economy but from massive ballooning debt (during arguably good times: NASDAQ up 40%+) and total annual interest expense likely to push past $1T by the end of Q3 FY ’24, right?
The fiscal mess that the next president is going to inherit is just gob smacking.
FJB!
My lease is up for renewal in March. They are telling me expect 8% rise. On top of 18% year before. Gave up saving. Now will give up something else. $140K / yr in LA. This town is for Private Equity and Sergeant Homeless and nobody else. Defense/space companies starting to get nervous…
I don’t like when people suggest removing certain housing markets out of the equation but like so many other aspects of the economy, a handful of large pocket bizarro markets are skewing the entire landscape.
Rent and housing is fine in the majority of markets. Not great by and large but in my area for example, egg prices never went sky high, meat didn’t, rent didn’t and houses are selling fast at reasonable prices. The housing market is actually on fire where I am. I finally ended up buying some properties. I never thought I would get into it but I finally had to pull the trigger. Glad I did it. Even in 08′ the housing market here was barely impacted. Almost no impact.
Good for you … I used to judge eggs as a great price when they came out under 10 cents an egg. Now if I see them at 25 cents an egg … I jump at it. Meat is only up about 50% … if I get the right sales. Ironically, over the last 2 years … rent is going up, but actually seems to be falling short of inflation … Having seen the increases in my insurance rates … it appears that the insurance companies are doing quite well these days.
The one no one has meniscus the idiotic way they price health care. If you belive the bls numbers it has decreased 30%.I belive mish had a comment from bls that basically said from the bls health care costs were to hard to figure so this is what we’re are doing. The housing competent was changed after the earlier 80’s inflation. Since so many of the government payments are tied to inflation, the cpi,
They jury rig the numbers to show a low result.
Imagine that
The Dow [1W] SOT. It rose above Jan 2 high, but closed below (on Thurs).
If the Dow will plunge rent might drop. US and UK might strike the Hooties.
I don’t think the Dow will have any effect on rent. Landlords have increases in property taxes, increases in insurance and increase in maintenance. These costs are passed onto the renter. These costs don’t decrease because the Down plunges.
I can tell you that the insurance companies are definitely more than their pound of flesh from this landlord.
This new high is not a new high when you factor in inflation.
Inflation is primarily driven by demographics. With millennials finally coming out of their parent’s basements similar to the boomers in the 70’s will be the biggest driver. Coupled with the modern financialization of the U.S. markets including real estate, and a Fed corrupted by big Wall Street being too loose, energy policies and petrochemical supply, I would be shocked if inflation was anything but hot over the next ten years.
BS! Inflation is BEING DRIVEN by FJB spending so much damn money.
We’re going to run a $2T deficit this year. That’s an S’Ton of money sloshing around in the system.
And, coming in #2 is the 15M illegals FJB is going to let into what used to be America.
Forget about “financialization” & millennials. Those inputs don’t even register, and I’m not even sure what the former means.
Remember – the Fed hasn’t yet cut rates at all. If inflation reheats, they might not.
Might not. You think so?
“The people who own their own home do not pay rent, they pay a mortgage. Most refinanced at or near 3 percent.
Some economists want to strike OER from the CPI on this basis.”
Strike it, and replace it with Case-Shiller like index, but I don’t think those economists have that in mind.
Maybe we should strike the word ‘science’ from the title ‘economic science’.
Economic psychology would be more accurate. Science does not depend on the mood of the subjects. Economics does.
Rather than ask people what they would charge to rent their home (or expect to pay to rent their home) they should ask homeowners what their mortgage+taxes/12+insurance/12 is. So if your monthly mortgage is 500 and you pay 2400K a year in taxes and 2400K a year in insurance the ‘rent equivalent’ for that home would be 500+200+200=900.
Then you could get a year over year rising cost CPI calc since insurance and taxes go up.
I wonder why there is no pushback on them deliberatly excluding home price inflation to understate true inflation statisitics. Its mind boggling why there has never been a question from the financial media or politicians pointing out this obvious lie the economic politburo propagates.
A devastating case against Israel in the International Court of Justice. They have been hung by their arrogance.
link to youtube.com
More antisemitism rants from Alex. Just when you thought he was done for a while.
Bam! He’s back spreading his FUD!
The Bureau of Lies CPI figures have shown a DECREASE for each of the last 3 months so we are actually in a period of deflation (if you can believe that).
Yet they feed the press (and the public) meaningless “seasonally adjusted” figures perhaps because they don’t want to trigger cognitive dissonance and distrust.
The seasonally adjusted figures are meaningless because the government, unions, social security, etc. base their payments/COLAS/tax brackets on the actual CPI readings which have gone down each month the last 3 months.
Thanks Mish. I’ll give you another perception issue with inflation. The year over year comparisons today are measured against a higher baseline. True for all the inflation components since 2020.
And look at new rents vs old leases from a baseline perspective. New rent baseline went up 20% before old leases got moving. So a 6% old lease = a 5% new lease bump today.
2.7% food rise = 4% over 2020 levels annualized.
Year-Over-Year is helped by easy comparisons as month-over-month is abating too.
“ It’s been a huge mistake thinking new leases and finished construction would drive rent prices.”
Supply. Demand. Completions absolutely drive rents along with new household formation. But it’s very localized. Localized declines get averaged out in national avearges. Overall, rents are not declining except in a few markets, but the pace of increase is down quite a bit. Most of the pricings I’ve seen are assuming 3-3.5% forward rent inflation if that’s helpful at all. Some are 0% for 2024 and recovering to some flavor of a 3% normal thereafter. I’ve seen no one pricing outright declines except in maybe 1 or 2 very overbuilt markets with heavy pipelines.
Assuming Bloomberg is correct, primary rent inflation month over month was the lowest by a smidge since December 2021. Seems to be slowing but at a glacial pace, normal caveats about mismeasurement notwithstanding.
“3-3.5% forward rent inflation ” is an improvement vs now. But when the target is 2% and shelter is 35% of the CPI it makes it tough on the Fed.
Not really. All they have to do is adjust their algo’s and come up with a new “neutral” rate of inflation, aka 3.5%.
You can be sure that OER and rent will not be on the ballot. The closest politicians on the left ever get to discussing this is with the disingenuous euphemism of, “the affordable housing crisis.” The specifics and who is responsible for this “affordable housing crisis,” are, of course, off limits and verboten in mainstream media financial news….Only a few websites like this one will discuss the root causes.
“OER and rent will not be on the ballot”.
People will be voting with their pocketbook not how the MSM reports on the economy.
Hotter than expected by whom? I expect inflation is a lot hotter than reported by the Federal Government.
Exactly. Price increases and shrinkflation remain brutal and relentless. When regime media declares that the Fed has engineered a soft landing in a few weeks, it will be the bankster equivalent of George W. Bush standing in front of the, “Mission Accomplished” banner on the aircraft carrier.
I should have mentioned that. The Bloomberg consensus was 0.2 percent. Similar elsewhere.