On October 19, I noted the National Average Rent Declined for the First Time in Two Years.
Key Findings
- The national average rent went up by 3.2% in the past year but dipped by 0.1% month-over-month, reaching $1,471 in September according to data from Yardi Matrix.
- Apartment rates in a majority of small and large cities registered either minor decreases or stagnated.
- In more than half of the nation’s largest renter hubs rent prices waned since August.
Year-Over-Year Rent Cafe
I thought it might be instructive to compare Rent Cafe to the CPI measures, Owners Equivalent Rent, and Rent of Primary Residence.
The Rent Cafe provided me with a year-over-year spreadsheet and I downloaded the CPI data from Fred, the St. Louis Fed data repository.
The numbers are not directly comparable because they measure different things. But the exercise does show apartment prices are far more volatile.
Comparison
OER:Owner’s Equivalent Rent is rental of houses or Condos assuming one rented ones’ house from himself as bizarre as that sounds. Here is the actual question: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
Rent of Primary Residence: Rent of primary residence measures non-owner occupied unfurnished apartments and houses without utilities.
National Average Rent: National rent is a weighted average of apartment rental prices. According to the Rent Cafe “We don’t make any distinction between furnished and unfurnished apartments or units with utilities included/not included. The share of furnished apartments or ones with utilities included is quite small.”
Volatility
Apartment rental prices are far more volatile than the cost of “renting one’s house from oneself”, the largest weight in the entire CPI.
Some will likely use this information to suggest buying a house is a good idea.
It might be if houses were not so damn expensive.
National Average Rent vs Hourly Earnings
Hourly earnings are from the BLS production and supervisory workers series and the all BLS workers series.
Housing Bubble Reblown
The Last Chance for a Good Price Was 7 Years Ago.
Pick Your Squeeze
- Renting a Home: Increases in National Average Rent have generally outpaced year-over year hourly earnings since 2011.
- Buying a House: House prices have risen far faster than earnings since 2012.
Compared to the price of rent or the price of buying a home, real wages have been in decline since 2011 or 2012.
Squeeze is On
Healthcare? Let’s not go there if you buy your own insurance.
Mike “Mish” Shedlock
Another way to view this topic is to understand that this is the result of the Federal Reserve desperately trying to inflate the economy and thus prevent deflation. Hence we now have all these horrible bubbles in our economy. It is just that simple.
How much does it actually cost to build a house? Let’s forgot about the lot. I paid $675 for my three bedroom no garage no basement in suburban DC. My sister bought a six bedroom on an acre lot, pool, huge trees (rare in Texas), three car garage for well under half that price. As I assume the contractor made a decent profit or he’d be out of business.
What is the land cost differential in the two locations?
These remarks are intended to be general and longer-term (local market conditions will always vary).
US consumers have operated on the prevailing wisdom home ownership always leads to wealth creation for them. (There are obviously exceptions on both the upside and downside with timing playing a key role.) But, I believe that this paradigm is in the midst of changing and changing hard.
We are seeing a new paradigm emerge. One that says buying a home is to be viewed like buying any depreciating asset, which, in fact, it is. There are lot of different causes, but principally it’s demographic.
This will have two important effects:
People will cut their current income spending because they won’t be able to draw any mental comfort from home wealth creation.
Homeowners (i.e., sellers) will have to plan around selling their homes (and will need to cut their spending even more in order to have greater savings). For home sellers, gone are the days of going to a closing and getting a big, fat check. Sellers will need to bring money to the closing (or simply walk away from the cost of whatever ‘improvements’ the sellers made to the home).
I’ve witnessed it first-hand. I have had the good fortune to live in several very affluent areas in the USA. Home prices in these areas are now falling and falling hard. People who have done million dollar plus improvements to their homes (e.g., pools, landscaping, interior finishes, etc.) are get absolutely ZERO financial benefit when they sell. In many cases, these sellers (or higher priced homes) are lucky to even sell for what they brought the house for. They’re walking away from very expensive improvements.
By my calculation, home prices improve by inflation plus local productivity improvements. I agree the model is changing – as more and more of the productivity improvements are being paid via financial asset growth rather than income for workers, the attractiveness of housing as a long term asset will decrease. My advice to a 30-year-old in a very high cost housing area would be to either keep renting and put as much money into stocks as they can, or buy the smallest, cheapest place as far from their place of work as they can deal with (moving down the price gradient from their workplace, obviously).
Another factor to consider is the increase in working from home. My company is aggressively trying to have us work from home, and saving a bucket of money in office space in the process. As fewer and fewer people need to live close to the traditional high paying job geographies, the housing costs will lower at the high end and rise at the lower end in surrounding areas.
All good and important comments…
But I think it still bears considering that:
Query: what happens to the entire American economic model if that paradigm is no longer true?
No more spending because no one can risk spending because their house may actually be a wealth detractor….
Another important point is that State & Local governments have ‘debts’ that assume flat or growing property tax revenues. That ain’t happening if housing prices drop.
My Florida real estate taxes are just now getting back to the same level they were in 2007 after about a 30% drop.
Illinois, on the other hand, saw increases even as valuations dropped. Go figure…
Touche!
As Thatcher put it:
“The trouble with Socialism is that eventually you run out of other people’s money.”
And since financialization and central banking is nothing more than socialism by way of theft-by-debasement rather than theft-by-taxation, sooner or later, idle “asset owning” debasement beneficiaries, do run out of other people’s money as well.
Your point #1 is critical. In a late stage, financialized dystopia, the share of current income which derives directly from spending enabled by nothing more than debasement-theft driven asset “appreciation” is enormous. Deflate that ultimately unsustainable baloon, and who knows how far the “lower asset prices leading to lower spending leading to lower earnings leading to lower yet asset prices etc..” spiral has to run, before it meets any kind of economically fundamental support.
Doubly so when the theft rackets have been going on for so long, and reached such systemically significant levels, that there are precious few people left, who are qualified for much at all beyond being beneficiaries of theft-by-debasement.
All the competence have long since been shipped off to Asia. Leaving nothing but a bunch of zero-to-negative-value-add ambulance chasers, “investors”, middlemen, random-number forecasters, “managers”, Hope and Change hype peddlers and guys who believe the roaches and mold in their house walls are somehow contributing to any kind of real value add.
As the federal reserve keeps proving, we will never run out of money, and calling it “other people’s Money” is a deliberately misleading turn of phrase. Nobody can really own FRNs other than the federal reserve/banking system, and the way our economic and financial system is arranged will always distribute more of those FRNs to higher net worth individuals. In fact High net worth people have more claims on the use of FRNs but they also will never run out, the Fed will keep them very well supplied forever. It will cost more to meet the very most near starvation demands of the wider population via safety nets that are paid for with taxes (also just claims on those FRNs) as more people go into poverty, and as the FRNs themselves are inflated into microscopic versions of what they once were, but they also will never run out. So, you will always have the narrow minded and ignorant partisans screaming to lower the cost of survival range benefits to the impoverished, even as you will always see the upper 10% mostly 1% owning a larger and larger pile of “stuff” their claims on FRNs allow them to hoard.
The one thing Thatcher had sort of right is that one day it will end. But how it will end is with the wealthy hanging upside down ala Mussolini from anything nearby that will support their weight.
Thatcher, for all her good (and bad) sides, never really grasped that fiat money isn’t money in an economic sense. So what she was referring to, was more akin to what you and I would call “real” money. Or “real wealth.” Which is something those dependent on robbing others, most certainly will run out of, if they keep at it long and hard enough. No matter how much monopoly money they print and lend themselves to cover that up.
As that other Englishman, Keynes, recognized; back when he was still practicing economics rather than applied quackery: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose….” Thatcher simply was not that one in a million.
Rent prices have doubled in Seattle since 2009. Great job Fed!
Same here in Oregon though it really is up about 90% just since the 2013/14 lease. My whopping 8.6% in COLA increases in that period mean 2020 is the year I go homeless till I can find a cheaper state to live in, eyeing the region north of Tampa Bay.
But I want to add that some things are going up even faster, auto insurance has way more than doubled. Food in general up about 40-50% and while some things like subsidized milk are stable, many other things especially produce have doubled. Hamburger is down, but only because they are slaughtering dairy herds as the effects of the end of dairy (other than milk) subsidies is putting dairy farmers out of business in record numbers.
The Fed causes homelessness.
Duh! That’s what central banks are supposed to do.
The Happy, Healthy Capitalists of Switzerland
Forget Scandinavia. Switzerland is richer and yet has a surprisingly equal wealth distribution. link to nytimes.com
Switzerland is not very diverse. They are losing out on the “diversity is our strength”.
Good mix of capitalism and socialism – supportive of wealth growth, and focused on spreading the wealth fairly. The U.S. is also good at supporting wealth creation, but falls flat on using the wealth for our people. Median wealth in Switzerland is $228K/person, we in the U.S.A. are $66K/person (“poor” Spain is $95K/person, and “socialist” France is $102K/person).
Everytime you hear “socialism” used as a slur, remember what the person wants you to hear is “I’m wealthy and I don’t want to share it”.
Note: This is a repost because the last post got “removed” – perhaps it hit too close for one of the moderators?
And the post got removed again.
What is it? The link to median wealth per person that makes the U.S. look like a dumpster fire?
Trying again (third time):
Good mix of capitalism and socialism – supportive of wealth growth, and focused on spreading the wealth fairly. The U.S. is also good at supporting wealth creation, but falls flat on using the wealth for our people. Median wealth in Switzerland is $228K/person, we in the U.S.A. are $66K/person (“poor” Spain is $95K/person, and “socialist” France is $102K/person).
Everytime you hear “socialism” used as a slur, remember what the person wants you to hear is “I’m wealthy and I don’t want to share it”.
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Note: This is a repost because the last post got “removed” – perhaps it hit too close for one of the moderators?
I see more people sacrificing 401k and other savings for buying a home. People have been convinced a home is a necessity. Its neither a necessity nor a good investment.
“… A home… is neither a necessity…” What are you smoking?
He means that an apartment is a better choice in some cases.
Thank you. An apartment is better in most cases as mobility is a necessary element of survival.
And an apartment is not a home?
Not a home as in a house.
Both are homes. Please stop smoking crap.
I think he is alluding to renting vs buying. Not whether one’s housing unit is classified as a house or an apartment.
Instead of us trying to interpret what he means…
Perhaps more so in the US than UK, “apartment” tends to refer to “rental unit.” While “Home”, or “House”, or even “Condominium”, refers to something you purchase.
Ah, divided by a common language then. Thanks, I understand.
You’re being deliberately obtuse. Stop embarrassing yourself.
Still smoking I see.
Mish’s chart shows a bubble, but the chart does not include units of homes sold. While prices are reblown, volume is nowhere close to new highs. This is a non-confirmation of the housing index gains. Prior to the housing bubble, the national home ownership rate was about 40%. Even after the housing market crash, home ownership is still around 60%; therefore, there is still a lot of bubble to deflate before a true buying opportunity arrives.
Mish: “Squeeze is On … Healthcare? Let’s not go there if you buy your own insurance.
Obamacare is an epic disaster, forcing demand up and supply down with an IRS enforced insurance scam. Its time to democrats to admit that Obama is a racist thug who’s signature legislation was a fraud.
Health care reform is still needed, and the payment system before Obamacare had serious problems before Obama made things worse…. but step one is admitting that the US government does not and cannot control costs on military spending, postal services, farm aid, education spending, or health care. Even if governments in other countries supposedly can (with oil royalties doing the heavy lifting!) — the US government is not able.
Walmart, Costco and CVS each have various low cost health clinic initiatives underway. All three have long standing reputations for bringing costs down, whereas Uncle Sam has a track record of inflating costs.
Many mid-sized employers are hiring concierge doctors and nurse practitioners to come in once or twice per week to their place of business and provide primary care. Its many multiples cheaper than hospital or granting time off to fight traffic to get to a doctor’s office. Adding a huge layer of bureaucracy, enforced by the IRS, only adds to costs.
I don’t know if Walmart et al will prove successful, and companies hiring concierge doctors may be a short term work around… but the ideas might work. An entity like Uncle Sam, known for buying $40,000 coffee makers, is not able to control costs. So other spending — from new cars to home ownership — will suffer as income gets diverted to prop up a failed political system.
We elected Trump because the alternative was much much worse, and in 2020 the alternatives are all 3rd world socialists.
I see my doctor once a year. My wife sees about 3 once a year also. Between the 4 doctors, I could easily pay, and they’d accept, $1200. My company pays Aetna $20,500 for insurance for my wife and I. The issue isn’t really local physicians. The issue is monopolistic hospital pricing + specialists. And, that has always been the problem. I despise Obamacare too, but it was popular for a reason: the existing system sucked. Costs went up every year and you needed a high priced attorney to tell you what your 80 page insurance contract was actually going to pay.
The problem is hospitals in most communities are monopolies that can charge whatever they want. And most are now owned by Private equity firms that are just layering debt on them that you are paying back through your company benefits. Fix that problem and you’ve fixed the healthcare problem.
Regrettably, I think not.
Examples:
Same meds are more expensive in the US,
Routine labs are exorbitant in the US.
US health system is procedure driven. Neither result focused, nor efficiency, nor choice.
Did you hear a about so called “standard of care”?
US health care is obssessed and distracted by a litigious system.
Government is too involved and in wrong aspects.
Medicare is irrational.
The whole thing is a chaotic mess dominated by narrow interests.
The goal is always to insert as many highly paid as possible incompetent, pointless, expendable-in-every-way leeches, between someone who needs a service ad is willing to pay for it, and someone competent enough to render it.
If you’re sick, you need doctors, and/or nurses/other direct caregivers. And you need someone capable of cheaply and efficiently produce whatever drugs and other implements you may need.
You do NOT need ambulance chasers. Nor contribute to $30k/month clinic rents, when some dudes outside Home Depot could slap together the same space for a tenth of that. Nor, aside from rare catastrophic events, to involve actuaries and the rest of the insurance industry (there actually is real use for insurance, although you wouldn’t know it by what passes for “insurance” today). Nor administrators. Doctors’ assistants are perfectly capable of administrating their own clinics and patients. Nor lobbyists. Etc., etc. All you need is Doctors, Nurses, medical technicians and cheap drugs. And the occasional dude from outside Home Depot.
If you look at the cost put IN by end users, compared to wages taken OUT by those rendering actual care and who actually work directly with creating medical supplies, the former would dwarf the latter. Which simply cannot, ever, happen in a free market, as people free to do so, will route around and shut out those who don’t directly provide some valuable service. And it is growth in this delta, between what is paid in by users and what is taken out by direct caregivers/supplu-providers, which underlies most of the outsized growth in health care costs. Everywhere. Although more so in the US than in many/most other places.
Just as is the case with all progressive “systems”, The System exists solely to insert pointless System beneficiaries, whose only role is milking The System, in between patients and care providers. Which is why all these “Systems” always end up needing massive mandatory components. Enforced, ultimately at gunpoint, bu Guess Who? Otherwise, people would just route around the “systems” and the well connected but utterly useless leeches profiteering from them. Noone benefits from having an army of leeches between them and whomever is capable of rendering an actual, valuable service, after all.
Government makes sure the hospitals have a monopoly — its ridiculous to suggest government would do anything other than perpetuate this problem, if not make it worse.
I mentioned Walmart and Costco’s reputations for lowering costs… I should have mentioned Amazon too. Again, I don’t know if they will succeed, but at least they don’t have a century of history causing costs to explode higher like Uncle Sam does.
CVS bought Aetna, I got notice from my health insurance provider (MHBA) which is Aetna based that I am required to fill all my prescriptions through CVS or they will not be covered at all. No choice in pharmacy if you have any insurance that is Aetna. No choice = higher prices. Oh sure next year I can change to another provider, but what are the chances that other big health insurance companies are not bought by Pharmacies or vice versa to compete with CVS/Aetna….Amazon made a play into prescriptions (PillPack) will we see them buy a health insurance company to capture market share?
CVS didn’t cut me off. They said if I want a 90 day supply, I can only get it through CVS. I can still get a 30 day supply from other pharmacists, but I had to call them to “opt-out”. Just more anti-capitalism, and making people’s lives worse.
The corporate cultures of CVS and Aetna are very different — and its too early to say which culture will emerge as the two companies actually integrate…. I agree that many of the early signs are worrying. Aetna is a mess
I have higher hopes for Walmart and Costco (and hopefully others too)… but there are no guarantees with any of them.
The only sure thing is that Uncle Sam has a reputation for over-estimating revenue, under-estimating costs — and then running way over their revised costs. Military spending, farm subsidies, post office, Amtrak, FEMA, Medicare… even the costs of ferrying Congress all over the place. They go way over budget on everything. Then look at things where the government puts finance wrappers on top — college costs, housing, and obamacare — the costs go up even more.
Government healthcare in other countries relies on oil royalties (or exports in Germany’s case) and they essentially run HMO’s — they restrict access. Its fraud to suggest these other systems offer unlimited care (they don’t, they restrict heavily like HMOs) or that they are self funding (they rely on outside subsidies, mostly oil royalties)
The costs of owning a home — as measured by the statistics in the post — do not include property taxes, whereas the rental stats have property tax costs “built in”.
And I doubt the ownership costs reflect maintenance costs either. In many locales, a homeowner has to hire three different repair men to get one thing fixed… the first guy doesn’t fix it, the second guy kinda does something, and after three tries the problem gets fixed. The government statistics include the cost of hiring one fixit man, but not the total cost of getting the problem fixed which is three times higher.
In some places, like my previous residence in a major urban area, the cost of housing was out of control and repair men were forced to live hours away (bad traffic and tolls, not distance). That meant it was tough to get a repair guy at any price; they wouldn’t show up unless it was a “big job” that justified the time on the road. Perfectly understandable from the repair guy’s point of view, but incredibly frustrating for a homeowner.
A lot of big rental companies have full time repair people on staff. Old school repair guys have bought houses to rent out (rentals are their retirement fund) but they fix their own properties only.
For everyone else, home ownership costs need to include buying new even when the item could be repaired if only there was a qualified repair guy available.
This is very true. I have a list of repairs and when it gets big enough, I can attract a contractor. I’ve found that it needs to be a minimum of a few thousand $ or I can’t find anyone that will fix things.
year over year that is correct – bubble reblown
Well, here is another look at the issue, and this report surprised me a lot: