The CPI report is on Tuesday. Reports suggest rent concessions from landlords. We’ve heard this story before. Is this time the real deal?
Concessions From Landlords
The Wall Street Journal reports Renters Are Starting to Get Concessions From Landlords Again, emphasis mine.
After suffering through a three-year period when rents jumped by 30% or more in many U.S. cities, renters are now starting to enjoy small breaks like this. Rents still aren’t falling by much. But thanks largely to an unusual surge in new building supply, more landlords are offering other enticements to fill up their properties, from a month of free rent to a reduction in fees and deposits.
The deepest discounting is happening in the South and other Sunbelt markets, in cities such as Charlotte, N.C., and Dallas, where there has been more construction than in the rest of the country. Mid-America Apartment Communities, a publicly traded company focused on Sunbelt cities, said in an October earnings call that widespread use of concessions by developers was weighing on how much rent it could charge.
Concessions don’t always reflect a great deal. Some landlords might offer discounts only on rent that was unusually high to begin with. Landlords dangling concessions also often ask tenants to sign 18-month leases. That means units leased in fall or winter months come up for renewal in the spring or summer, when landlords tend to have more pricing power. Tenants could end up paying much higher rents down the line.
The concession trend might also prove short-lived. Permits for new buildings are falling, amid a financing crunch that makes it difficult for developers to put stakes in the ground.
And a for-sale market that remains inaccessible to so many could also prop up rents long term and cut into all the freebies. Coats, the Virginia Beach renter, was readying to buy a home until interest rates shot up last year and prices hovered near record highs.
Is This the Real Deal?
I have doubted every one of these falling rent stories for two years. This one seems a little more solid.
Rather than saying I doubt it. I will change my tune to I just don’t know.
For sure, a half percent on average for 27 straight months doesn’t seem sustainable, but many have been yapping about 1 year lags for about two years.
Seasonality in Play
The Journal caught one key idea with “units leased in fall or winter months come up for renewal in the spring or summer, when landlords tend to have more pricing power. Tenants could end up paying much higher rents down the line.“
National Rent Price vs CPI Rent of Primary Residence
Is the Fourth Time a Charm?
The “falling rent” stories to date have all been wrong due to a combination of factors.
First, they ignored seasonality. Second they have primarily been based on new leases not renewals.
New leases only account for 15 percent of the market according to census data. Judging from the above chart, one might have expected the price of rent to fall at the beginning of 2021, 2022, and 2023.
Many did. Look what happened.
CPI Rent
Rent of primary residence, the cost that best equates to the rent people pay, jumped another 0.5 percent in October.
People kept telling me rent is falling. I keep saying it isn’t (and the data proves it).
For discussion, please see Falling Rent is Extremely Rare, Yet Economists Keep Expecting That
Rent of primary residence has gone up at least 0.4 percent for 27 consecutive months although the widely believed lag is 12 months!
Let’s assume rent reverses for a while due to a combination of strong seasonality, finished apartments, and increased competition for new leases.
It’s possible. And if it does, then on Tuesday we could easily see a negative CPI print.
But if rent just slows to 0.2 percent or less, reported inflation will head towards the Fed’s 2 percent annual target.
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?
Please see the above link for my take on inflationary pressures and how long they might last.
So is Mid-America Apartments MAA a contrarian buy? Management even sounds gloomy.
There’s new luxury apartment complexes every few miles here in suburban Kansas City.
I guess the theory is that boomers will downsize into them? They’re too expensive for students or low income.
And they’re too expensive for smart boomers on fixed incomes heading into a decade of inflation.
Wage/price spiral will continue until deflation sets in or when the US stops spending money on wars and fake climate change initiatives. 20 states, compared to I think 26 last year, are raising minimum wages. Fed wages are booming at 5.2%, state wages, new uion contracts….nope…zero relief.
Per Fedsmith.com, last 5 years of federal worker raises: 1.9, 3.1, 1.0, 2.7, 4.6. Total 13.6%. Inflation: 21%. Every union contract I’ve seen recently does not make up for that 21% inflation. That includes “huge raises” for UPS drivers and UAW workers. They’re making less today than they did in 2018.
?? You’re argument/response is really weird. First, you use an argument by a website that has a CLEAR bias to promote Fed employment. What kind of Econ math is that? Why not pick the last 10 years of Fed raises? Inflation only raised it’s head in late 2021. 21%?
Listen, as a Fed worker myself who makes $145K I can appreciate the cheerleading. But, your argument over the SUBJECT matter of rent, wage/price spiral is ompletely invalid. Go back and try again.
Relief will arrive when FJB is thrown in jail, someone closes the border and forces most of the 14M illegals to self-deport.
Nolte from Brietbart has an absolutely spot-on read with lots of humor regarding this topic.
link to breitbart.com
I don’t know how. Here is Los Angeles there is no inventory, homeowners don’t allow the few operators brave enough with the over-regulation to try to build to build, and borrowing costs have skyrocketed
“Is This the Real Deal?”
Where are all the illegal aliens coming into the country, staying? They have to live someplace. Martha’s Vineyard couldn’t even handle a small influx. California has had a decrease in population the last two years, yet rents in rent controlled L.A. are expected to be allowed an increase of up to 6% next year, causing a renters protest. L.A. is a sanctuary city, sitting some 120 miles north of the border.
This makes much more sense.
Saturday Morning Breakfast Cereal – Behold (smbc-comics.com)
property tax is up 10% and INSURANCE is up 38%
many are experiencing 100% increases in insurance
I HAVE TO RAISE RENTS
Own or rent, property tax is a significant cost, some places more than others. Are the government parasites giving up their salaries, benefits and pensions?
Since the Nov 1948/ Oct 1949 recession, 11 recessions ranged between (-)0.3% in 2001 and (-)5.1% in 2007/2009. That’s 75Y. Historically it can get much worse.
I’m a landlord. I do not intend to reduce rents. My costs are increasing, notably taxes and maintenance
My taxes and insurance costs are soaring meaning, like you, I intend to hike rents.
On the cusp of recession and during the first stages of recession, before BLS tag
a recession, landlords raise rent, bc they have to. After a few years of falling properties
prices in real terms, during the glut, landlords finally adjust.
Be kind to your tenants. Your customers might be loyal to u, if they can, bc vacancies are a curse.