People keep telling me the price of rent is falling. I keep doubting. The doubters have it correct again.
For the second straight month, this headline that caught my eye this morning: “U.S. stocks are rising after cooler-than-expected inflation data.”
Let’s tune into the BLS Report for the details.
CPI Month-Over-Month
- Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent in June on a seasonally adjusted basis, after increasing 0.1 percent in May.
- The index for shelter was the largest contributor to the monthly all items increase, accounting for over 70 percent of the increase, with the index for motor vehicle insurance also contributing.
- The food index increased 0.1 percent in June after increasing 0.2 percent the previous month. The index for food at home was unchanged over the month while the index for food away from home rose 0.4 percent in June.
- The energy index rose 0.6 percent in June as the major energy component indexes were mixed.
- The index for all items less food and energy rose 0.2 percent in June, the smallest 1-month increase in that index since August 2021. I
CPI Shelter
Shelter Notes
- Shelter comprises 34.67 percent of the CPI
- Rent of primary residence is standard rent (not owner occupied), unfurnished without utilities.
- Owners’ Equivalent Rent (OER), is the estimated price one would pay to rent one’s own house, unfurnished and without utilities. It is the single largest CPI component at 25.50 percent.
- The shelter index increased 7.8 percent over the last year, accounting for over two-thirds of the total increase in all items less food and energy.
CPI Year-Over-Year
Year-Over-Year Details
- The all items index increased 3.0 percent for the 12 months ending June; this was the smallest 12-month increase since the period ending March 2021.
- The all items less food and energy index rose 4.8 percent over the last 12 months.
- The energy index decreased 16.7 percent for the 12 months ending June
- The food index increased 5.7 percent over the last year.
- Shelter is up 7.8 percent from a year ago.
Leading Indicators
Sorry folks, rent prices are NOT coming down, despite such reports for over a year now.
If 57 of the 100 largest cities in America had declining rents, the BLS would reflect that. I will accept that the price of new leases is falling, but most renters do not move.
Would you move to save $50 a month? $100? It’s not worth the hassle unless the new place is cheaper, nicer, and more convenient.
Most analysts have been expecting the price of shelter to come down.
I have not been in that camp and still aren’t although we are getting closer to smaller increases.
The idea that the price of new leases leads the way has certainly not lived up to its deceleration billing.
What About Supply?
The Starter Home Is No More, Even in Second Tier Markets
In 100 of 100 markets, the average renter cannot afford a lower tier house.
Powell is waiting, and so are renters, because homes are miserably unaffordable with the average mortgage rate of 6.9 percent according to Mortgage News Daily.
For discussion, please see The Starter Home Is No More, Even in Second Tier Markets
Until the price of homes crash, or prices steady and mortgage rates crash, those looking to buy an affordable starter home will be out of luck.
This has widespread implications for household formation and the economy. Many people are trapped into renting, even when they want out.
real estate only goes up. it never goes down. also inflation is no problem, the benjamin in my pocket buys me about 1/10th of what it a few decades ago. i’m still amazed so many don’t understand what inflation really is. been trading FX for decades. the currency is debauched.
REal estate does go down. It went down significantly in 2009 and early 2010.
But of course, there are always many people with plenty of liquid cash. They jumped on all the bargains in the auctions at that time and quickly bought up all the inventory.
Longer term though, real estate does generally always go up.
We are in the midst of a “wage — housing price” inflationary spiral due to excessively low housing inventory. Rising rents on continuing leases (mine went up 8% less than 90 days ago) are causing workers to demand higher wages.
Builders can’t create enough inventory to fix this mess. The only solution is to remove or water down investor friendly tax breaks related to home ownership. Homes are just too damn attractive as investments right now. People are using the depreciation tax break combined with other tricks to exploit tax loopholes, creating huge gains that can’t be matched by stock market investing.
“Most analysts have been expecting the price of shelter to come down. ”
What is an analyst? A chart watcher? These people are ALL wrong as often as they are right.
Deflation on EVs and yards fill with EVs in China . Bargains coming
link to youtu.be
Why can’t we stop homelessness? 4 reasons why there’s no end in sight
July 12, 20239:39 AM ET
Jennifer Ludden
When Los Angeles Mayor Karen Bass campaigned last year on reining in homelessness, she laid out bold proposals with a budget of hundreds of millions of dollars. In April, she told NPR she hoped for a “very significant reduction” this year, especially of people living on the street. But on Monday, Bass said it’s become clear that there’s simply no end in sight.
“We really need to normalize the fact, unfortunately, that we’re living in a crisis,” she said at a press conference announcing a renewal of her emergency declaration on homelessness.
The shift in tone comes after both LA and New York City recently declared a record level of homelessness, and other cities have also seen their numbers continue to climb despite considerable attention and spending to give people shelter. It’s part of a steady rise around the country since 2016, after years of successfully driving down the number of people without housing.
So what’s going on? Advocacy groups and researchers say a big driving force is the decline of affordable housing, a problem decades in the making but one that has grown significantly worse in the past few years. Here are a few ways it’s playing out.
…
link to npr.org
CMBS multi housing units : wall street might send the keys to investors flooding the markets with tens of thousands units.
Given that the annual SS bump is calculated on inflation numbers between July-September, the government will be working hard to show as low inflation as possible for these months.
Population declining, more people single and not getting married. Wonder if a majority of singles renting.
I’m curious whether property owners, especially for large apartment buildings, are increasing rent (and BS fees) because they are looking at a refinance in the near future and the current rents won’t cover their anticipated new payment upon refinance.
Only the idiots at the Fed think you can cure rent inflation with higher interest rates. When your job spends on doing stupid stuff, you keep doing stupid stuff.
CPI : Shelter in US city average stalled at 7% y/y. C/S y/y : next reading zero
at best.
As it continues to raise rates to reduce inflation, the Fed is killing economic growth and raising the unemployment rate. A more effective strategy from necessary leadership would be to reduce the level of government spending with policies which promote the increase supply of goods and services while letting the market set the level of interest rates.
Rents are coming down Mish. The calculation as you well know has a huge lag effect. Inflation rate is coming down no matter how much you hate Joe Biden.
Joe Biden is doing everything humanly possible to stoke inflation.
And for the record, I don’t like Trump either.
Per Breifing.com: Spain was the first EU member state to reach the 2.0% inflation target as CPI decelerated to 1.9% yr/yr in the reading for June.
In economic data:
Spain’s June CPI 0.6% m/m, as expected (last 0.0%); 1.9% yr/yr, as expected (last 3.2%). Core CPI 5.9% yr/yr, as expected (last 6.1%)
As it continues to raise rates to reduce inflation, the Fed is killing economic growth and raising the unemployment rate. A more effective strategy from necessary leadership would be to reduce the level of government spending with policies which promote the increase supply of goods and services while letting the market set the level of interest rates.
Agreed
The opposite can be said about OER. My mortgage doesn’t change for the next 28 years. So while property tax, maintenance and utilities rise, OER way overstates my housing cost. OER is no less than double my actual cost.
Housing units under construction 5+ units : 978, y/y : 15.9%.
How many units are demolished or otherwise fall derelict uninhabitable never to return to the market each year?
The CPI : all items minus shelter in US cities y/y +0.7% : the down thrust speed is high. It might cross the zero line and breach 2020 low ==> deflation.
Change the base, change the inflation rate. Realistically, prices have skyrocketed.
Time for my monthly compound inflation report.
If June 2023 CPI were calculated Biennially it would be 12.37%, stating that prices are 12.37% higher than in June, 2021. This is a .57% rate drop from last months biennial CPI of 12.94% but is still an increase in prices. If June 2023 CPI were calculated triennially, it would be 18.44%, stating that prices are 18.44% higher than in June 2020. This represents a .15% rate drop from last months 18.59% triennial CPI figure. It is a 1.71% increase over March 2020 Triennial CPI rate just 3 short months ago. PRICES ARE STILL GOING UP!!!!
Once again inflation is not simple inflation but is compound inflation. Triennial Compound CPI is 12.32% greater than FED targeted 2% CPI goals for this same 3 year time period.
CPI does not really reflect actual prices of necessities.
It would take just shy of 6 years of ZERO PERCENT CPI to arrive at what the FED’s targeted 2% CPI would have produced with June 2020 as the base month. I call this important number the “ZERO PERCENT CPI NEUTRAL AFFECT ADJUSTMENT INDICATOR” or ZPCpiNAAI for short, .HaHa.
Much of inflation is speculative, and non productive. Whatever it takes to remove the speculative component out of the equation, and enhance the productive component in our economy is in order. Boom times are when society leverages borrowed money and lives beyond its means. Recessions are when society lives within its means. Boom times and inflation only benefit those with access to borrowed money first, everyone else suffers.
I do appreciate this info. Makes more sense about what I see and know rather than what the water-carrying Leftist MSM spews.
If you own rental property , owners will say rent is down
If you pay rent then your rent is going up and UP and UP
If you buy beef there is only higher and higher prices
CPI numbers are fabricated as to manipulate the makets.
I say bull cocky. Went to grocery store, as usual, and nothing is going down. Veggies up along with everything else. Gas still close at 5 bucks a gallon (get my gas, premium, at Costco), my insurance on my rentals and health is not going down. Sorry man, but my eyes and checking account see a different financial picture.
Had some guy give me estimate for 2 new patio doors and the labor was just as much as the patio doors! The doors are Anderson and this is insane. Fortunately, I do a lot of business with Home Depot and got a decent discount from them for same doors vs this other independent company.
My rents are below market, but I will definitely be raising everyone’s rent next year. I did last year. Just keep believin’ in your no inflation BS.
I’ve seen lots of grocery items come down. Start with eggs, down 54% this year. Also cheese, non alcoholic beverages, milk, just to name a few.
Same here.
Same here in Florida too.
Of course those items didn’t come ALL the way back down where they were. They just came down from shortage level prices which were insane.
But you can definitely get grocery bargains if you avoid the big box grocery stores. Farmers markets and small independents have much better prices on a lot of fresh stuff and Walmart/Costco/Sams club for the non perishable stuff like toilet paper, paper towels, cleaning supplies etc.
Mish assumes the data have some integrity. I’m pretty sure Hunter Biden is the government data czar.
Anecdotally, when a person close to me has been looking at rentals for about 6 months now, in our area, the rent asks are pretty much universally being cut.
In any event, the rent costs the Fed is looking at are one of the laggiest of the lagging indicators, probably 9 to 12 months old by the time they get them.
My view is, when you raise rates by a shocking 500 bips in an economy that can grow at under 1% long term, you are going to break some things.
What is really interesting is even as CPI beat all the expectations this morning, 30 year treasury futures, barely moved. Then retraced the initial upmove. But are now moving higher. Very strange action
Druckenmiller and others say Long Treasuries are uninvestable because they are worried about the bang point, US fiscal position decay.
Probably one more go at ZIRP before we eventually get that in the next 5-15 years. Depending what happens next year.
But, inflation went up .2%. Bull Market. Prices have risen 73 months straight. BULL Market. Credit card debt is over $1T, banks reporting greatest loan losses since COVID, US added $1T to national debt in 5 weeks, manu down, retail down, mortgage rates highest since 20 years, car repos sky-high trad deficit, 2/10 yr yield, M1/M2 lowest since Great Depression. Unemployment low, BULL MARKET!!!
There’s an expression “buyer beware” and a modern take needs to be “data consumer beware” because while CPI printed 3.1%, the “disinflation” was largely driven by energy. Oil reached a low of $67 in June. Oddly enough, the EIA is forecasting oil at $83.51 in 2024. Bizarrely, the EIA is forecasting gasoline lower in 2024 even though oil higher.
link to eia.gov
We forecast that the Brent crude oil spot price will average $78 per barrel (b) in July. Crude oil prices gradually increase throughout our forecast, reaching about $80/b in 4Q23 and averaging about $84/b in 2024 because we expect that global oil inventories will decline over the next five quarters.
Services inflation is also very sticky….
Hersey opened their factory near where the dairy farms were in Pennsylvania. There was no housing so they built it. They had no problem finding workers and made money charging them rent and they owned the local stores too. People didn’t quit because there was no where else to work.
I wonder why companies don’t do the same. I would guess you could operate out of Nebraska for a lot less than California.
Hershey. Not Hersey.
Editing is greatly needed.
The concept of company towns has been around since the 1800s. The problem is that most of them end up as Ghost towns if (when) the company eventually goes out of business or moves.
I was born in a company (cement factory) town in Canada that is now a Ghost town. When the plant closed they bulldozed pretty much the entire town since they owned 90+% of it.
I suspect that’s a big reason people don’t want to live in such places or if they do, only for the short term when they are single or childless and can easily move again.