The number of housing units under construction topped 1.4 million in August of 2022 and has been there ever sense. When does that matter? 
Housing Units Under Construction and Completed
The number of completed units is nowhere close to four previous peaks.
For two years of longer analysts have been predicting a collapse in the price of rent based on units under construction. Some insists it’s already underway but the BLS is lagging.
The CPI Rose Sharply in March
The CPI rose 0.4 percent in March. Rent is up another 0.4 percent in March with gasoline up 1.7 percent. Together, the pair was about half of the total rise.
On April 10, I commented The CPI Rose Sharply in March Led by Shelter and Gasoline
I repeat my core key theme for over two years now. People keep telling me rents are falling, I keep saying they aren’t.
Rent of primary residence, the cost that best equates to the rent people pay, jumped another 0.4 percent in March. Rent of primary residence has gone up at least 0.4 percent for 31 consecutive months!
The “rents are falling” (or soon will) projections have been based on the price of new leases and cherry picked markets. But existing leases, much more important, keep rising.
Only 8 to 9 percent of renters move each year. It’s been a huge mistake thinking new leases and finished construction would drive rent prices.
BLS Surveys Every Six Months
That means the BLS lag should be about six months. If there is an addition impact based on completions that will show up too.
Since most leases renew in the months of May-August, it may still take a few months before we see abatement in rent prices.
Housing units completed and Under Construction vs Rent
There is little correlation between rent and completions. Nor is there a strong correlation between rent and recessions.
It really comes down to whether or not supply has outpaced demand. That is what Jay Parsons discusses in this Tweet.
Here are the top 15 markets for apartment demand in the past 12 months. These are some very big numbers, and yet… not enough to keep pace with supply anywhere– even outside the Sun Belt.
No, it’s not because would-be homebuyers are renting instead. Remember those folks are 1) likely already renters and therefore not net new, and 2) renters aging out of apartments are more likely to end up in SFR if not buying. This more likely corresponds to rapidly improving consumer sentiment (combined with wages outpacing rents for 15 straight months) pulling more young adults out of the nest or out of shared housing.
But the supply/demand gap is interesting and reflects the realities of supply hitting 40-year highs and soon to hit 50-year highs. Lots of demand, but even more supply. Will likely be 2025-26 in most markets before demand outpaces supply again (as starts have plunged over last year), which means occupancy and rent rebounds are likely still a ways out.
I have no information on how those numbers are calculated. Also, demand not > supply does not imply supply > demand. They could be equal or close.
Nor do I know the propensity of people to move to get a better deal. I would not move to save one months rent. Moving is a hassle.
But if a place is much cheaper and has a better location or better amenities I would move and I believe so would others.
Here’s another key point that I have discussed before: Large property managers now set rents by algorithm.
Before algorithms, property managers hated to see a vacant unit. Now they live with 5 percent vacancies if the algorithm says that maximizes profits.
Looking Ahead
Given that rent has risen at lease 0.4 percent for 31 consecutive months, there is going to be a pullback at some time. Those wanting to bet on a Goldilocks CPI number, may wish to do so in May or June.
If there is favorable data for June and July, the Fed may cut then.
There will not be a cut in May. Odds of a June cut are down to 16 percent. July is down to 43 percent.
But it’s not just rent. The Fed will be looking at other services and it cannot totally ignore gasoline without being accused of politics.
New Residential Construction
Housing starts plunged in March, but for the past year, it’s really a tale of two markets, single-family vs multi-family.
For more discussion of the latest residential construction report, please see Housing Starts Plunge 14.7 Percent, Multi-Family Very Weak For a Year
The 30-year mortgage rate is back up to 7.50 percent according to Mortgage News Daily. That will put a damper on things.
Mish,
That “Under Construction and Completed” chart is very valuable – thank you for putting it together.
At first I was confused by why/how “completeds” could be so much higher than “under constructions” until I saw that you had annualized the former.
But…do you have any insight into why exactly the previous excess of annualized completeds over “under constructions” basically vanishes post 2008.
Presumably this plays into the extremely tight occupancy numbers driving the post 2020 rent/SFH home price surges, but I can’t figure out what exactly changed to collapse the pre-2008 surpluses
That change really, really stands out – do you know what it means/what triggered it?
Did builders start abandoning large numbers of homes that had started construction? That doesn’t seem likely at all..
I have no insight into what you ask other than to say it was screaming something at me too, but I don’t know what.
I created this chart for the first time recently.
All your posts miss the fact there are probably 30 million undocumented workers and two proxy wars and three cold wars going on that is keeping the MIC going.
For rental units, this could be why prices are sticky high…Computer algorithm suggests that it is better to have an unoccupied unit rather than lowering price to obtain a tenant. Good article…
link to propublica.org
That is only the case when your pockets are deep enough.
Important possibility, thanks for mentioning it.
As with RSMeans’ “Home Building Cost” surveys and the like in other industries, these innocent sounding “surveys”/”analytics”/etc can in point of fact act as a tool for attempts at collusion – and that should at least be acknowledged.
“Yield optimizer” tools of various stripes all work off the principle of withholding some supply in order to maximize price/revenue.
That’s legal for an individual company to do in a competitive market.
But if “independent” suppliers use online tools to “coordinate” their withholding of supply – that’s illegal collusion.
It all depends upon what is really going on in these “rent survey” companies online black boxes.
We have four friends (American and Canadian) who SUDDENLY are having a hard time renting Summer and Winter Vacay homes here and in Mexico and one couple has four rentals here in Oregon and they are suddenly vacant. People are leaving Oregon as well for overseas rental situations or to Southern States where generally costs of living are lower.
Rents are never going to decrease. The cost of building materials, homeowners insurance, property taxes and maintenance aren’t going to decrease. States are increasing property taxes on the landlords. Landlords increase the rent to pay for the increase in costs to maintain the property. I don’t see a high percentage of landlords who want to rent to illegals that aren’t able to legally work in the US – unless it’s the slums/bad neighborhoods/cities.
I imagine that, in general … new builds are at a higher price point than existing. With labor, interest rates … and materials being a mixed bag (some up some down … and still some delays) … I imagine that a new build is going to have to rent over normal market. Yes, lots of them would put some downward pressure on … but a slight cut in the price of Mercedes doesn’t necessarily mean Kia’s get cheaper
Any increase in supply is going to help.
In the old days, apartment builders very rarely had such tight control on overall supply (achieved exactly how?) that 95+% occupancy rates were a multi-year phenomenon in the majority of metros across the country (the mystery of the post-Pandemic rent explosion is why/how it is so national in character…that is a historic rarity in the apartment mkt too.).
Enough new supply will fix the madness – but the fumblers at the Fed spent 20 years herding us into a policy box canyon where their need to allow interest rates free rein (after the 10 yr ZIRP strangulation) happens at the exact moment when the US is pretty damn housing starved.
Three cheers for the central mismanagement of the “free” US economy…
One factor that could drop rents pretty rapidly (and some home prices) is *if* Trump gets elected, and *if* his policy of mass deportations begins for many of the umpteen million illegal migrants that the Democrats have allowed into our country.
Even if such a policy is only slowly introduced, and even if it mainly tries to first target just the most undesirable migrants (illegals who have committed additional crimes, or have some problem record in their home country, or cannot or will not work, will be dependent on welfare, etc.)…even just the concern of deportation, and lower expectation of legit work permits, will make landlords far more afraid to rent to anyone undocumented. This would rapidly create additional supply, and reduced rents, for legit US citizens and residents, esp. in transitioning sanctuary states…
Under the new president, sanctuary states and cities might abruptly have to end those sanctuary policies, and that might cause a lot of illegal migrants (esp. dangerous ones) to voluntarily leave those places, maybe leave the country. Such an exodus should free up many housing units.
Elections matter.
They don’t even need to deport anyone. Just the act of closing the border would result in falling rents.
One court allowing third-party US citizen standing for a cause of action against an illegals’ renting *landlord* might do it too.
Ditto for causes of action against federal/state governments for intentional/discriminatory failure to enforce laws on the books.
why would rents OVER THE LONG RUN ever decrease in a capitalist economy? it only makes sense for the wealthy to own as much of the stock as possible and then extract maximum rents. it’s good business. Stiglitz would be proud. you can squeeze much out of man whose place of sleep depends on you.
“why would rents OVER THE LONG RUN ever decrease in a capitalist economy?”
Plenty of other products’ costs have fallen over time.
I suspect plenty of builder/landlord skull-duggery over the long, dark night of ZIRP…but the tons of restrictive political zoning regs strangling supply don’t help one damn bit either.
When political supply strangling gets so bad that the State of California(!!) has to step in to loosen things up (California!!) you know that madness has reigned for a long time in the CA housing market.
When you see “days on the market” and “days to rent” increase will be when the price starts to drop.
The collapse in closed sales transactions is a pretty good leading indicator of future price declines as well.
Sellers always want the old peak price until they realize they may have to wait 2, 3, or 10 times as long to have a chance in hell of getting it.
Then panic starts setting in and the speculative sellers decide it is better to be on the train than under it.
Not necessarily. In my market (Jacksonville, Fla. metro), YoY closed sales are down 13%, pending sales down 29%, active inventory is up 46%, months of supply up 68% and yet median sales price (both total and per square foot) is up 6%. Seems like prices keep going up no matter what.
Rents are going to go up further, when government is funding rents (directly & through NGOs) to put illegal immigrants in rental units this results in government competing with renters using tax payers money.
100%
Low income rentals are needed by the millions.
It’s inevitable that commie blocks will be created.
70% of the homeless you see were previously marginally functional people who rented a sub par structure and whose landlord provided some degree of emotional and human support to known people from their communities. They could wash dishes in restaurants or mow lawns buy beer and watch TV from a tiny $400 a month place that afforded them a life.
Air bnb pulled all of those low income shacks sheds apartments off the market – this drove up the value of the remaining low priced rentals – non Air BnB rentals.
It’s as simple as that.
Inhumanity is at the core of homelessness.
The millions of immigrants will no doubt morph into some type of Section 8 housing piled 10 to a house and you’ll be paying the rent. While the American homeless will still be sleeping down by the (((American))) river.
The US is morally bereft. Ignorant and evil they cheer for war and war spending while their communities dissolve into meth and Fent wastelands.
How does housing under construction lower property taxes?
How does housing under construction lower the cost of insuring illegal aliens, illegal squatters, and a general loss of property rights under George Soros appointed district attorneys?
Mish keeps asking why his capitalist economic indicators do not work under marxist Bidenomics… seems like this was answered already.
Under socialism / marxism (two peas in the same corrupt pod) … **everyone** suffers economically except the politicians, until they run out of other people’s money (aka what used to be your money). After that, the system finds a new group to rob or it collapses.
This topic being one that is also covered frequently by Wolf Richter on Wolfstreet……..does anyone else suspect that guy off being controlled opposition working as a guy who pretends to give you the straight facts buts it really just amounts to watching a report on TV at night about what the weather was like earlier during the day. If you try to actually discuss real strategies of the Federal Reserve and how the system works that branches out beyond viewing the Fed as a benign bumbling institution that doesn’t employ psychological propaganda and long term strategic operations like an intelligence agency would. If you look up Wolf Richter and also World Economic Forum you can find that they have a reference to him as a writer. He seems to flip flop on major issues while trying to display quite a bit of arrogance towards people who have only stated what is obvious and they end up actually being right as time goes by, or he’ll agree with a common stance and then seamlessly abandon it as if it were never an issue mentioned before. There is quite a few things I could bring up………..but the bigger picture is to point out that I suspect that even in economic news sources, intelligence agencies use journalists that there is a working relationship with to slant things in a controlled manner. There is very good reason for this which is obvious to me because populations and people that feel like they are lied to, cheated, and outright robbed are very prone to insurrection and violence.
Careful there. We shouldn’t let the obvious propaganda lead you to extreme paranoia. At the end of the day, it’s your responsibility to do your own due diligence, check the facts someone is presenting to you, and make your own call regarding accuracy.
I’ve been on WolfStreet for years (and have contributed a few articles) and in my experience Wolf is a semi-retired guy calling it as he sees it, and backing it up with facts. His voice has made (or saved) me a lot of money.
The “Bumbling Fed Hypothesis” has a lot of explanatory power. The Fed absolutely does employ propaganda, but since everyone knows the policy rates Wolf’s approach still works. The Fed’s ‘Ganda game is mainly in omissions, but they also have the spin on the FOMC statements and forward outlook. The omissions are the way they pretend about their actual mandates, and in never discussing all the times they totally break the law. I’m also of the opinion that a Bumbling Fed is a valuable construct for manipulators on Wall Street. If the Fed actually got competent someone would have serious financial incentives to “un-fix” that.
As for Wolf, I’d say yes, intelligent people do shift their positions when the evidence changes, except if they’re radical fringe ideologues and then you don’t want to be listening to them. But you are making a judgment that he should fess up to you every time he changes his mind. You don’t own him … why should he go to the trouble of telling you every time he changes his mind (if he even notices)? He’s in the business of attracting eyeballs to sell advertising, as Mish is, and so there’s a financial disincentive to changing narratives mid-stream, because it confuses the hell out of readers. All journalists are the same way: when you’re wrong, you stop talking about that (bad for credibility) and look for the new story line. If you get the new story line right, you keep your readers and move ahead.
Also, older guys who don’t expect to work much longer tend to get less tolerant of time-wasting BS, so if your comment seems off-base and he doesn’t agree with you, yes he’ll shut you down. I find that irritating also, it makes the comments section more of an echo chamber than an open conversation, but having moderated forums before (a thankless job if ever there was one), I can understand it. If you want full freedom of speech you need to be on an open forum, not a private blog. But that comes with its own penalties.
In that same vein, if I change my mind about something, I might prefer not to make a big deal out of it because (aside from not wanting to embarrass myself), that also wastes more of my time. If Wolf posted an article with data that was outright provably wrong, I’d expect a correction or retraction. I haven’t ever seen that. Interpretation is in the eye of the beholder and that’s why markets work: people have varying opinions about the same data and trade accordingly.
And of course, you’re free to start your own site if you’ve got better ideas!
Well, that is a quality response so it’s appreciated even if I’m not in total agreement. I asked for what people think and you told me what you think and you took the time to write it out. Thanks.
Thanks. I think what you’re looking for is a genuinely scientific or engineering sort of discourse (“this is right, this is wrong and we’re fixing it, we can improve here…”). I would love that, but if it’s out there I cannot find it. Everyone has financial incentives at play – some would argue that most scientists and engineers do too even.
That sounds like a great way to summarize it in a a way better than I would have thought. I think I’m prone to believing in conspiratorial events and circumstances because I have a hard time believing that such a complex society can function as well as it does (or function as well as it has been if it my be going into decline regionally) with what are supposed to be such utter morons making all the big decisions. Meanwhile, we supposedly have specific and distinct problems that people forever are bothered by and discuss but I can see that reasonable and intelligent leaders can solve, this stuff is not as hard as people make it seem, unless these people are truly morons, extremely crooked, or puppets in a conspiracy. I’m still going to learn towards conspiracy at the higher levels of government, finance, and international relations. 2020 was an economic hit and that’s my take. And when it’s verifiable that it’s part of pentagon and CIA policy to have and large degree of control of formal news and media messaging, I think some of my concerns seem reasonable to at least keep in mind. I do see things from an engineering perspective and I don’t appreciate half ass work or poor excuses when there is plenty of talent out there that can do better, there are very intelligent people in the United States among the morons and if the fools i power are having that much trouble then they are need to stop hogging and consolidating control. Additionally, centralization of power only hastens corruption and expand it’s reach.
Examples that normal intelligent people with real education and experience can fix at least 50% of the issues within 1 decade of time:
the tax code
military spending
education financing
medical financing
immigration policy and enforcement
power grid infrastructure
(good luck with the debt though, massive inflation or war is the only way to weasel our way out of that one again)
This is what happens when lawyers run a country from it’s intelligence agency directors and top staff down to senators senators. Engineers can solve these problems, many of them do it for a living. Human systems can be solved using the same intelligence. None of this stuff is that complicated compared to the work some people are out there doing for decades. When three of the last four presidents can barely talk correctly, I’m starting to wonder if the puppet masters are so unconcerned and powerful that they are that careless and sloppy these days or just losing their touch.
The problem is when the country depends on imports for so much, manages the global drug trade to prop up it’s currency and stimulate demand for it, depends on weapons sales as it’s major driver of the national economy, and is constantly engaged in wars, it’s hard to not get nefarious in thinking.
Been having the same thoughts since I saw the light in 2006-2008. When problems that could be easily solved, aren’t being solved, one has to ask why there’s no will to solve them. Sometimes it’s purely a matter of distraction and lack of focus, but usually it’s someone’s special interest at play.
Where I live there’s a notorious freeway interchange that’s hopelessly dysfunctional, adding several minutes to the commutes of thousands of people per day, costing the region tens of millions of dollars in wasted time each year. Yet it hasn’t been fixed for at least 30 years. That’s a lot of “stupidity tax”, so I wonder who owns the adjacent land that would have to be reworked to fix the interchange…
Have you ever thought that intelligence agencies might purposely manipulate the stock market for one of several significant claimed purposes such as?….
national security (can claim anything under that)
insider information to make trades on to profit from actions
to generate profits to fund black operations (could claim later)
to just get money like crooked cops would do to drug dealers
to launder drug money or hide financing more effectively
On a side note lumber prices have dropped. I plan to take advantage of it and add a detached on suite to one of my properties. The buyer could have the best of both worlds; a house and a rental.
You doing it yourself? If not the increase in the price of labor could more than outstrip any decease in lumber prices.
I thought lumber was down, but I just bought 2 pieces of OSB (7/16) that I had seen earlier for $12 or $14 .. and they were back to $22. So don’t expect to get fire sales at the lumber yard
When 40 million illegal aliens, and counting, are deported with prejudice within 12 months and can’t come back, ever, due to closed borders, the deportations funded by current MIC funding for NATO. Have a nice day. .
Yea, watch the economy collapse if that happens. There aren’t enough workers on the bench to make up the difference.
It will be like a day without a government worker, no one will notice. Most service sector jobs are either luxuries or bureaucracies, People might have to mow their own damn lawn, or cook at home their own meal, or God forbid be the maid on their own short term rental. Boomers will get a wake up call about why their parents lived as they did. It will be wonderful.
Don’t worry will be just fine and thriving without all the government funded social welfare non-productive jobs to serve illegal immigrants vanish.
class A doesn’t affect class C property
other than to keep us raising rents to earn more ROI
CIS (Center for Immigration Studies) estimates that the foreign born population in the USA has increased by at least 6 million since Biden took office. There’s your answer. The demand for housing is still outstripping the supply of it. That figure from CIS also accounts for outflows of foreigners from the USA. The estimates are based on from US Census data which according to CIS does a surprisingly good job at measuring the non-native population.
link to youtu.be
You are lucky if you live in Biden’s America. If you want to see ultra-liberal extremist utopia (nightmare), welcome to Turdo’s Canada.