CPI data shows rent has gone up at least 0.4 percent for 29 months. Let’s compare the CPI with four other measures. 
Five Measures Explained
- CPI Rent: Rent of primary residence as measured by the BLS.
- NTR: New Tenant Rent index as measured by the Cleveland Fed. Data is new tenants not lease renewals.
- ATRR: All Tenant Regressed Rent index as measured by the Cleveland Fed. It consists of new and existing leases.
- ZORI: Zillow Observed Rent Index. It is a smoothed measure of the typical observed market rate rent described in more detail below.
- Apt List: Apartment List. Data is new tenants not lease renewals. This data is not seasonally adjusted, the rest are.
New Tenant Rent Index
The BLS has an excellent discussion of the New Tenant Rent Index vs the CPI emphasis mine.
The New Tenant Rent Index and All Tenant Regressed Rent Index are research index series that use data sourced from data collected in the Consumer Price Index (CPI) Housing Survey. The New Tenant Rent Index (R-CPI-NTR) measures prices renters would face if they changed housing units every period. The rent component of the official CPI measures the change in all rents, including new leases, renewals, and rents in the middle of a lease. In contrast, the New Tenant Rent Index uses only a subset of the data the official CPI uses, namely the first survey observations after new tenents move into their sampled housing units. The All Tenant Regressed Rent Index (R-CPI-ATR) is a measure with a scope similar to the CPI, but using methodology similar to the New Tenant Rent Index. The All Tenant Regressed Rent Index measures the rent paid by all renters, both new and continuing, and incorporates most of the survey data used for the CPI Rent of primary residence index. The All Tenant Regressed Rent Index is published alongside the New Tenant Rent Index to facilitate comparisons.
The New Tenant Rent Index and All Tenant Regressed Rent Index series are currently calculated as quarterly indexes, with observations from three months of the housing survey pooled together. The two series begin in 2005. Every period, the entire series is re-estimated. In the regression method used, new observation pairs influences the index over the entire time spanned by the pair. The most recent periods of a repeat transaction index like the New Tenant Rent Index are prone to large revisions, because the rent observations spanning those periods accumulate gradually as tenants move. For example, if a tenant moves into a housing unit in December 2023 and the subsequent tenant moves into the housing unit in December 2024, then the value for the New Tenant Rent Index in 2023Q4 will be revised when the housing unit is next surveyed after December 2024. In contrast, the non-seasonally adjusted indexes for the CPI are seldom revised. Sample sizes for the New Tenant Rent Index are much smaller than for the All Tenant Regressed Rent Index or the official CPI; this is especially the case in the first and fourth quarters when fewer moves happen.
The New Tenant Rent Index and All Tenant Regressed Rent Index were adapted from the “New Tenant Repeat Rent Index” and “All Tenant Repeat Rent Index” of the research article “Disentangling Rent Index Differences: Data, Methods, and Scope“. The article further details the indexes’ construction and uses the index to compare the CPI rent component to other rent indexes. The New Tenant Rent Index and All Tenant Regressed Rent Index are currently calculated as prototype research indexes. Their methodology may change as they continue to develop.
The ATRR is designed to be a bit more timely but also more prone to error especially in the first and fourth quarters.
The NTR is a very small sample and confidence levels in the data are wide.
Since ATRR is based off BLS methodology, one might expect it to track CPI rent pretty closely and it does.
A quick look at the above chart shows the BLS lags ATRR which lags NTR which lags Zillow which lags Apartment List.
Zillow ZORI Discussion
The Zillow Observed Rent Index (ZORI) is a smoothed measure of the typical observed market rate rent across a given region.
ZORI is a repeat-rent index that is weighted to the rental housing stock to ensure representativeness across the entire market, not just those homes currently listed for-rent. The index is dollar-denominated by computing the mean of listed rents that fall into the 40th to 60th percentile range for all homes and apartments in a given region, which is weighted to reflect the rental housing stock.
As I read that as using list prices as opposed to actual measured contracts. And like Apartment List, it seems overly weighted to new leases.
The problem with overweighting weighting new tenants is they only represent about 9 percent of the market and are much more volatile that rent renewals.
Apartment List
The Apartment List Rent Estimates are tabulated using fully-representative median rent statistics for recent movers taken from the Census Bureau’s American Community Survey, extrapolated forward to the current month using a growth rate calculated from real-time lease transactions that take place on our platform.
We use a same-unit, repeat-transaction analysis similar to Case-Shiller’s approach, comparing only units that are available across both time periods to provide an accurate picture of rent growth.
There are two big problems with Apartment List. The data is not seasonally adjusted and it is new tenant data onl.
Apartment List – National Rent Price vs CPI
Apartment List does not seasonally adjust data making it useless for month-over-month comparisons. That it only contains new leases produces the wild swings in the first chart.
Zillow has the same flaws.
5 Measures of Rent Synopsis
- Both Apartment List and Zillow show huge early year-over-year spikes that we do not see in ATRR, Rent, or even NTR. This is a sign of serious weighting issues with respect to new vs existing leases.
- NTR is also new tenant only, but it is usable because NTR is also incorporated into ATTR. We can see the impact of new leases vs renewals in ATRR.
- The smart thing to do is toss Apartment List and Zillow as unusable and see what we can glean from the BLS vs the Cleveland Fed measures.
ATRR vs CPI Rent Year-Over-Year 2023 Q4
As one might expect the ATRR and CPI track close. Also note that ATRR peaked one quarter before the CPI. ATRR may be a bit lagging too so the real lag may be 6 months or so.
ATTR is up 5.27 percent from a year ago vs 6.80 percent for the CPI. But neither is particularly appealing to the Fed.
Also year-over-year comparisons are a bit flawed because of easy comparisons.
NTR Confidence Range
As noted above, new tenant data is a small sample and even smaller in the first and fourth quarter when few people move.
The confidence range for the NTR in the fourth quarter is a wild -0.54 percent to -8.94 percent which is not that confident.
Regardless, note that the NTR went from +2.58 percent to -4.74 percent but the impact on ATTR was a drop of +5.95 percent to 5.27 percent.
ATRR vs CPI Index Levels 2023 Q4
Actual index levels tell an even more compelling story.
I picked an index year of 2000 for the CPI. It could have been any year and it would not make a difference to the percentages.
That the CPI line is above the ATTR line is not meaningful. Had I picked a 2015 as the base year for the CPI the yellow line would be below the green line.
What matters are the calculations.
- From 2021 Q1 to 2023 Q4 the ATRR rose from 166.13 to 196.26. That’s a gain of 18.14 percent.
- From 2021 Q1 to 2023 Q4 CPI rent rose from 190.00 to 225.40. That’s a gain of 18.63 percent.
The ATRR and CPI Rent are on an identical path. The next calculation is more interesting.
The NTR fell from 201.18 to 183.58 in 2023 Q4. That’s a huge quarter-over-quarter decline of 8.7 percent.
But despite that whopping decline, the ATRR which incorporates that NTR data rose from 193.29 to 196.26. That’s a rise of 1.5 percent for the quarter. So despite new tenant leases falling, overall rents are still up 1.5 percent for the quarter.
And look at the CPI rent index. It rose from 222.5 to 225.4. That’s a gain of 1.3 percent.
Despite the decline in new leases that has everyone going gaga, the ATRR quarter-over-quarter number rose more than the CPI.
NTR Year Over Year 2023 Q4
Q. When does other data reflect that change?
A: It already does
ATRR incorporates NTR. Yet, despite that plunge, ATRR rose 1.5 percent from the previous quarter.
Nearly everyone on the planet looks at that chart and tells me rent is dropping or that it will soon drop.
Rent is not dropping and I have been hearing “soon” for two full years because “the CPI is Lagging”.
Sorry, but year-over-year comparisons do not mean falling prices (see the yellow and green lines two charts back). And importantly, falling prices on new tenant leases do not mean falling prices on existing leases are imminent either.
This is what the data shows in spades.
ATRR vs CPI Rent Quarter Over Quarter 2023 Q4
ATRR is more timely but it is also more volatile than the CPI.
Rent Now Set by AI
Finally, it’s worth mentioning that rent prices are now set by AI. Please consider Rent Going Up? One Company’s Algorithm Could Be Why.
“Never before have we seen these numbers,” said Jay Parsons, a vice president of RealPage, as conventiongoers wandered by. Apartment rents had recently shot up by as much as 14.5%, he said in a video touting the company’s services. Turning to his colleague, Parsons asked: What role had the software played?
“I think it’s driving it, quite honestly,” answered Andrew Bowen, another RealPage executive. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”
“The beauty of YieldStar is that it pushes you to go places that you wouldn’t have gone if you weren’t using it,” said Kortney Balas, director of revenue management at JVM Realty, referring to RealPage’s software in a testimonial video on the company’s website.
The nation’s largest property management firm, Greystar, found that even in one downturn, its buildings using YieldStar “outperformed their markets by 4.8%,” a significant premium above competitors, RealPage said in materials on its website. Greystar uses RealPage’s software to price tens of thousands of apartments.
In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage.
To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge.
For tenants, the system upends the practice of negotiating with apartment building staff. RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.
One of the algorithm’s developers told ProPublica that leasing agents had “too much empathy” compared to computer generated pricing.
Looking Ahead
Everyone has been jumping the gun for nearly two years based off Zillow or Apartment List or the NTR.
And every month someone posts data based on new tenants and says rents are falling. Sorry, they aren’t.
I do expect the pace of rent increases will slow.
Perhaps its starts next month. I am not saying it can’t. I am saying it hasn’t happened yet, nationally. And I am also saying don’t place too much faith in what new tenant leases are doing because they are only 9 percent of the market.
New leases rose faster than existing leases for a while now they finally may be falling. But overall prices are still going up.
A Final Word on Lags
OK rent is lagging. Tell that that to the cash strapped renter who sees this chart.
For the 29th consecutive month rent was up at least 0.4 percent. Shelter, a broader category, rose 0.6 percent. Food rose 0.4 percent.
For discussion please see Another Hotter Than Expected CPI Led by Shelter, Up Another 0.6 Percent
Factor in Bidenomics
In addition to the mess the Fed made in housing, one needs to factor in the inflationary impacts of Bidenomics.
Our net zero lesson of the day is The True Costs of Net Zero Are Becoming Impossible to Hide
Biden taunted the Supreme Court on Student Debt Cancellation: “The Supreme Court Didn’t Stop Me”
Biden’s regulations, big union wage increases, and student debt cancellation are all inflationary.
Big Explosion of Government and Social Assistance Jobs
President Biden is bragging about job growth in 2023. But he doesn’t say where those jobs are.
On February 5, I noted a Big Explosion of Government and Social Assistance Jobs in 2023 to Help Migrants
Fed Chairman Tells 60 Minutes US Fiscal Path is Unsustainable
Fed Chair Jerome Powell tells 60 Minutes that it’s “urgent” the US address its “Unsustainable Fiscal Path”
Please consider Fed Chairman Tells 60 Minutes US Fiscal Path is Unsustainable
The Fed normally does not comment on fiscal policy, but Powell did. “Debt is growing faster than the economy. So, it is unsustainable. … You could say that it was urgent,” said Powell.
I list 15 key takeaways from the interview. Click on the above link for discussion.
Congressional Spending Out of Control
On top of the Fed distortions and Bidenomics, there is no fiscal discipline in Congress.
For example, please see 169 Republicans Vote to Expand Welfare, Bill Heads to Senate
Senate Republicans are pushing free money for Ukraine and Israel while doing nothing about a surge of illegal immigrants.
Despite all of this, the consensus opinion is for a soft landing.
What a hoot. Get real.
Mish- this post is REALLY in-depth, quite helpful to my understanding and must have taken many hours to create. I would vote for expanding on this… a mini-series… to break down and help us the BS for other area beyond rents. Thanks!
Thanks
I spent at least 8 hours on this post. As expected, I got few likes, comments, or retweets on Twitter.
This was a very detailed effort.
RealPage users in Washington state may have been slightly disenchanted by the Washington State Legislature yesterday, February 13. Rent control measure HB 2114 passed, (54 votes to 43), limiting rent increases to 7% in a 12 month period and preventing any rent increases during the first year of tenancy.
Many elderly couples/widows live in 3/5 BR empty nests. Most of them don’t need it and can’t afford it. They are not selling bc of the 3%/4% mortgages/ mortgage free and bc Gen Z and millennials can’t afford it and don’t want it. It’s a systemic change. It’s frog cooking. Small changes are deadly. Sam Zell always sold years before the peak. In the stock markets u can sell with a click. In the RE market the boomers might tumble down for years, bc RE is a good investment and they are too old to trade.
I bet most of those older empty nesters are mortgage free. I suspect the problem is most of them *can’t afford to downsize* rather than can’t afford to live where they are.
I was talking to my mid 80 year old parents over Xmas. They have been toying for years with selling the home I grew up in (2500 sq ft with fully finished walkout basement that’s another 1200 sq ft). The problem is they can’t find anything comparable price wise. My dad said the cost for them to live there was around 25K a year. That includes taxes, insurance, utilities, lawn care (plus planting flowers etc), once a week cleaning lady, taking their laundry to a once a week service (neither of them like to go down stairs to the basement unless they have to). They looked into some retirement homes and ones with meals run 6-10K a month, regular apartments that are 1/3 the size of their house are 2K for anything you’d want to live in and so on. In other words it’s cheaper to remain where they are and pay for lawn, cleaning, laundry etc than it is to move somewhere else and all things considered their home on 3/4 acre lot on the water is infinitely preferable to any other thing they could get.
They can’t afford a retirement home. They can’t walk downstairs to the basement. They can hardly walk upstairs. They are spending 25K/Y, mortgage
free, on a 2500 sqf house. A 800 sqf apt cost 2K/m, but if your parents sell today they might get $1M. They can get 4%/5% rent from the gov. Within a few years, u guys, might not be able to sell it for 1M in real terms. I am not a financial adviser !
Spot on! I know a couple neighbors in the same boat. They say all the same things. They have a 4 bedroom 2600 sq house paid for. They could sell it for $400k but new retirement ready villas with masterbed on the 1st floor sell for $540k to $600k. They do not want to downsize by taking on a mortgage. The inventory for a smaller ranch house built in the 1960s or 1970s are nowhere to be found. They are stuck.
NTR deflated. NTR dragged with it ATRR QoQ down, since 2022. NTR reflects the rate of change, not quantity. If NTR quantity will rise from a drizzle to a flood more people will move out to vacant apt or from the major cities to the flyover areas. That might deflate the ATRR index and the CPI Rent index, which took off vertically since 2020. SPX [1M] RSI escaped negative territory since Feb 2009. If it will get there, in repetition, it will bend the CPI Rent index.
When they shout, “SOFT LANDING” – – what does that mean, Mish? Meaning that there will be no recession? Job losses drop? CPI drops? MONEY gains value (buying power increases?). What does it mean? Thanks.
Soft landing means no recession, low inflation
This post is a welcome reprieve from the usual “2024 battle of the two geezers” posts. The accurate measurement of what the US CPI calls “shelter” is a conundrum. I personally prefer the HICP approach using actual rents only, but, as explained by Eurostar and the ECB repeatedly, even HICP isn’t quite up to the job.
It’s Eurostat, not Eurostar (that’s a train).
There are algorithms being used by some companies to set rent prices to obtain the best ROI. Lawsuits are contending ‘price fixing’.
link to propublica.org
link to propublica.org
An RV park recently opened near me. I wasn’t happy about it at first but the park is very clean with walking trails, a pool, gas lounge fire pit area, gym and a pavilion.
I don’t know the prices to park there but assuming it’s much lower than renting an apartment? I will look into it but if it’s cheaper, if I was a young man I would absolutely want to live there. I was rarely home anyway in my youth going to school and working a couple PT jobs. I did rent houses with a bunch of guys but I would much rather be in the park and not have to put up with all their BS.
My wife and I live Full time in two RV’s: One is stationary (remains in a CO-OP Park – – we are “owners) and we use the Diesel pusher to travel. RV RENTS have risen dramatically over the past 5-7 years. Back in 1997, rents were averaging, while traveling, at $17 per night. Rents in FLA, during the winter, were $1,000 a month (Snow birding). RV PARKS ARE NO LONGER A BARGAIN.
Yeah, I just looked it up the one here. It’s $69 a night but this place is the Taj Mahal of RV parks. I assumed it was half that so absolutely no bargain.
$17 a night is not bad though for 2 people. That’s a little over 3K a year. For a single person it’s still a bargain. Far cheaper than an apartment in most decent markets.
We’ve been staying outside of Fort Worth this year in a nice park for $650 + typically $150 electricity. Great fifth wheel. Looking to upgrade to a higher end park for $850 + $150. We think it a bargain relatively speaking and would be looking at $2000+ for a house. Great neighbors and if we don’t like them we can always leave!
RealPage is colluding with competitors to raise prices as a business. They all should be prosecuted
I get a kick out of the so called expert economists, and people like Jon below, who actually believe in a world where landlords ever, ever, ever lower their rent. YOu all put Disney to shame
I would not put any faith in Zori. Every time I search for a property on Zillow I am told that the property is likely to sell faster than 93% of properties near by. I think 87% is the lowest I have ever seen. Might just be me. Check out Zillow and see if you get similar results.
Apparently folks still dont get economics 101 – lower inflation means prices are going up less. It doesnt mean prices are going down – that’s deflation and usually only happens during depressions or major recessions.
Apartment prices will stay high and go even higher. Just look at a long term rent chart. It’s obvious.
link to fred.stlouisfed.org
If there is one thing conventional economics tells us, its that if there exists a profitable market in rents at lower prices than generally found in the market, some enterprising entrepreneur will step in and fill that space. So this stuff really isn’t a long-term concern.
There are 46,000 homeless in L.A. A survey was done and found a good % simply couldn’t afford an apartment. My local state legislator is running for Schiff’s seat, to get more money from Washington for “affordable housing.” Also, next month there is a billion $ ballot measure for tax payers to pay for housing for homeless veterans. Newsom is promoting it. If there is a way, enterprising entrepreneurs will take advantage of the tax payers.
With the buying up of apartment buildings using the zero percent interest rate loans for connected/wealthy buyers in 2006-2020, you have shrunk the supply of apartments (and houses — same reason you cant find starter homes) plus you have the slow creep upwards of property taxes (have to pay for all those retired cops, firemen and teachers) and — big surprise — home insurance (mine 34% in one year last year). Nothing but pain everywhere you look — a lot of it self-inflicted.
Residential prices went up despite massive tightening, thanks to fixed rate mortgages, so it’s difficult to see rents falling. Ironically, market bulls keep loosening financial conditions, allowing asset prices to appreciate (including housing) and thus not really giving space for rents to fall.