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How Far Behind the Curve is the BLS and Fed on Rent Inflation?

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18 comments on How Far Behind the Curve is the BLS and Fed on Rent Inflation?

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National Rent data from ApartmentList, OER and Primary Residence from the BLS, chart by Mish

I created the above chart with a data download from the Apartment List National Rent Report and the St. Louis Fed. 

Over the past 12 months as a whole, rent prices have spiked by 15.3 percent nationally. 

Prices are now starting to decline year-over-year from unprecedented highs having peaked at over 17.8 percent.

Apartment List Stated Methodology

  • We calculate growth rates using a same-unit analysis similar to Case-Shiller’s approach, comparing only units for which we observe transactions in multiple time periods to provide an accurate picture of rent growth that controls for compositional changes in the available inventory.
  • We capture repeat transactions – when a single apartment gets rented more than once over time – and check whether the transacted rent price has changed between those transactions
  • Rent estimates reflect prices paid by renters, not list prices for units that remain vacant.

Apartment List Comments 

While the apartment market has shown some signs of easing, our 5 percent vacancy index remains well below the pre-pandemic norm, and increased pressure in the for-sale market could translate to the rental market as well. As we enter the summer months, we are likely to see continued rent growth through the rental market’s busy season. Despite a recent cool-down, many American renters are likely to remain burdened throughout 2022 by historically high housing costs.

Case-Shiller vs National Rent vs the BLS

  • Case-Shiller is a lagging indicator of home prices. The most recent data is from March and it represents sales from three months prior.
  • National Rent is is a leading indicator of where rent is headed. Contracts are typically a year or longer and contracts changes over time. 
  • The CPI data from the BLS reflects what one is paying now. For roughly eleven of twelve months for the average person, rent does not change at all.

Where to for OER and Rent of Primary Residence

There is upward pressure on BLS measures of rent for perhaps another six months. 

If the trajectory remains what it has been, then year-over-year rent and OER will get to 7.5%. 

CPI Weight

  • OER: 23.816%
  • Rent of Primary Residence: 7.278%
  • Energy 8.295%
  • Food: 13.361%

Those numbers are for April 2022 and typically change a bit every month. 

Together, OER and rent of primary residence are over 31% of the entire CPI. 

The four items above are 52.7% of the entire CPI.

Year-over-year prices may stabilize or fall because of difficult comparisons but there is considerable upward pressure on month-over-month numbers.

The Fed is not going to have an east go of reining in inflation.

CPI Year-Over-Year Drops a Bit, But Is it Believable?

CPI data from BLS, chart by Mish

For further discussion of the CPI, please see CPI Year-Over-Year Drops a Bit, But Is it Believable?

For a spotlight on home prices, please see Case-Shiller Home Prices Reach New Record High, But This is Rear View Mirror Look

This post originated at MishTalk.Com.

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18 Comments
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Carl_R
Carl_R
4 years ago
Obviously rising prices for property caused some significant rent increases. I think it’s extremely likely that the eviction ban also was partially responsible for the increases. It caused a lot of pain for landlords, and that had to be passed through to tenants.
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xbizo
xbizo
4 years ago
Reply to  Carl_R
I think landlords are more tied to supply and demand than purchase price. Properties are often bought in anticipation of rent increases (low supply, growing demand), but other time landlords take decreases (think 2008-10).
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8dots
8dots
4 years ago
1) Q1 2022 GDP was up +1.6% > Q4 2021 GDP. Q1 2022 was negative in real terms. Wall street convinced panic investors to sell at bargain prices, before recession start in Q2 2022…..Good job Mish.
2) The Fed isn’t behind the curve. For a year and a half JP sucked liquidity from the banks, accumulating $2T RRP. // RRP is a valve to regulate the economy. 20% FedRate defy logic, too barbaric.
Higher inflation rates will solve the problems of zombie debt. In real terms zombies debt will become meaningless. The zombies might wake up after being comatose since 2008. Higher interest rates are good for small businesses that don’t do buybacks for for zombie executives bonuses and perks. Small businesses will innovate, protected by the higher rates. The banks will increase assets, the economy will flourish, at least for a while.
3) The risk : after JP cannibalize the RRP ==> recession.
4) We don’t know what will happen next. Those are options.
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Tony Bennett
Tony Bennett
4 years ago
Well, Federal Reserve behind the curve, alright. Like Everywhere.
US vehicle sales for May out today.
expected … 14.3 million (annualized)
range of “experts” … 14.0 million to 14.5 million
actual … 12.7 million
Read Ford’s release … blame on chip shortage … nary a word on gas prices.
Per EIA’s weekly petroleum update — US average gas prices all formulations per gallon —
Week ending –
April 25th … $4.11
May 2nd … $4.18
May 9th … $4.33
May 16th … $4.49
May 23rd … $4.59
May 30th … $4.62
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KidHorn
KidHorn
4 years ago
Reply to  Tony Bennett
I was looking at new car prices today. One of my kids is home for the summer and left her car at school. She’s always asking to borrow mine. One of my kids is about to turn 14 and will need a car in a couple of years. So I thought why not buy her a car now and her sister can use it over the summer.
Many advertised prices are thousands over MSRP. I’m not looking at new high demand automobiles. I’m looking at entry level cars that won’t cost a fortune to insure for a teenager. I’m not going to get a new car this summer.
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Maximus_Minimus
Maximus_Minimus
4 years ago
Reply to  Tony Bennett
12.7 million would be in the ballpark during the first years of the Great Recession.
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MPO45
MPO45
4 years ago
One of the reasons I got into rental properties is because that’s where the money is at…..take a look at the demographics of the U.S.
Baby Boomers:  Born between 1946 and 1964. Age 57-75 years old. Size: 71.6 million in the U.S.

Gen X: Born between 1965 and 1980. Age: 41-56 years old. Size: 65.2 million people in the U.S.

Gen Y: Millennials born between 1981 and 1995. Age: 25-40 years old. Size: 72.1 million in the U.S.

Gen Z:  Born between 1997 and 2012. Age: 9 -24 years old. Size: 68 million in the U.S.

Gen A: Born in 2012 and 2025. Age. 0 – 10. Size ~48 million in the U.S.

Boomers, Gen X, Millennials, and Gen Z are all adults or becoming adults and they all want a place of their own. While boomers will likely downsize, that won’t happen until 2030 in large numbers so now between 2030 there will be large demand for housing. Housing may come down a bit but I believe it will be short lived.
Of course others believe differently and that’s fine because that’s what makes a free market. Those that do research and analysis, take risk, invest and make money and others that don’t.
I can’t wait for the fed to hike next two FOMC meetings, will make buying properties cheaper for cash buyers.
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Christoball
Christoball
4 years ago
Reply to  MPO45
Sometimes it is just nice to have cash.
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Esclaro
Esclaro
4 years ago
Reply to  MPO45
I am a boomer (1954) who downsized about five years ago. Most of the people who are my age that I know also downsized or are in the process. Everyone in my neighborhood is an old boomer – there is going to be a flood of houses for sale!
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TexasTim65
TexasTim65
4 years ago
Reply to  Esclaro
Yes but the question here is what did you downsize to? If you bought another house then all you (and other boomers do) is just play musical houses. It doesn’t increase or decrease demand for homes if you just swap house A for house B.
Actual changes would be if boomers all downsized homes for apartments/condos/nursing homes/moving in with their kids.
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Eighthman
Eighthman
4 years ago
In regard to the Fed, there is a claim that the New York Fed holds 38% of all Treasury bonds , 10 – 30 yr duration. The day is coming when the CPI will go on steroids.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Eighthman
“The day is coming when the CPI will go on steroids.”
…
Brick Wall (hard recession) Dead Ahead. We’ll see how cpi fares then.
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Business Man
Business Man
4 years ago
Reply to  Tony Bennett
I heard a contrarian argument last week against recessions causing deflation (or, decrease in inflation).
The essence is that this inflation is supply-side generated, with a shortage of goods. There is demand side, too, and yes, that will dissipate in a recession. But the supply side will only get worse, because there will be less firms and products to choose from; lower productivity. Especially in commodities. This is why you see hyperinflation in economies like Venezuela, because as it becomes more difficult to produce, prices must continue to rise to accommodate product scarcity. The gentleman making this argument was Peter Schiff.
There is more to it, but his point was that recessions and economic decreases do not necessarily mean that prices will come down. It’s not a given, and there are many examples of inflation increasing in these situations (ala, stagflation).
I would be cautious about the assumption that lower economic activity automatically means lower prices.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Business Man
For the record, I expect a hard drop in asset prices … which will bleed over into cpi. Some minor yoy “negatives” likely for cpi.
Way too much debt. As financial conditions tighten, loans will go bad —> even tighter lending.
In our fiat world credit = money. Less credit. Less money. Stuff gets cheaper.
Schiff a clueless goldbug
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Matt3
Matt3
4 years ago
Reply to  Tony Bennett
Maybe rates will be constrained by the Fed. 10 year not allowed to go above some level. 3.0%. Inflation left to run at 4%. (actually higher if real figures were used to calculate).
Monetizing the debt of government until government debt to GDP is back to down – maybe 75%. This would be a nice slow bleed of purchasing power. Everyone gets a little poorer but debts can be managed.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Matt3
QE + low interest rates got us into this mess (inflation) … more of “it” will get us out?
Hard recession on deck … with or without Federal Reserve’s approval.
Policy error made coming out of the GFC. Not now.
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Business Man
Business Man
4 years ago
Reply to  Tony Bennett
Honestly, I hope you are right. In my own businesses I’m having all sorts of inflation-related troubles. I could use a break from the monthly unknowns and getting back to price stability, because it is very stressful. It’s also highly stressful because I keep raising wages without really knowing if my price increases will be accepted by customers — or when the other shoe will drop.
I dread the day of having to lay off employees because of these economic factors that I can’t control. Who gives a raise and then months later lays someone off? I might be in that pool of employers if this thing goes sideways.
Back to inflation, and your argument. I tend to think you will be more right, but I wanted to point out that there are others who believe it will only get worse as economic activity slows down. It’s something to think about, but I’m not sure if I subscribe to the theory, yet.
For people who are trading assets, your scenario presents great opportunity. For businesses all of this presents huge risks, because everyone is out there waiting to eat our lunch, and if we are undercapitalized or guess wrong — it’s lights out.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Business Man
“I wanted to point out that there are others who believe it will only get worse as economic activity slows down.”
…
Yes. CPI trickier, fer sure. Some components won’t see much of a drop … if any. I could well be wrong here and we do not see any year over year drop in cpi.
Assets, on the other hand …
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