Economists and others have been predicting monthly increases in rent would stall or fall for two years. Year-over-year rates are down, but monthly increases are still big.
Chart Notes
- NTR is the New Tenant Rent index from the Cleveland Fed. Lower and Upper are confidence bounds. These are new leases only.
- CPI rent is Rent of Primary residence as measured by the BLS. These are new and existing leases.
- OER is Owners’ Equivalent Rent a measure of rent for people who own their own houses. The index measures rent of houses unfurnished without utilities. It should and does track Rent of Primary Residence. These are new and existing leases.
- Zori is the Zillow Observed Rent Index. These are new leases only.
- Apt List is the Apartment List Rent Index. These are new leases only. This index is not seasonally adjusted, the rest are.
Everyone is attempting to calculate when the CPI will head lower based on when rent of primary residence and OER head lower. The idea is based off lead times of new leases.
The BLS smooths things out over 12 months and seasonally adjusts the numbers too. But other than Apartment List, all of the numbers are seasonally adjusted.
Index Peaks
- Apartment List: 2021 Q4, 18.10%
- Zori: 2022 Q1, 16.27%
- NTR: 2022 Q2, 12.15%
- OER: 2023 Q1, 8.00%
- Rent: 2023 Q1, 8.80%
The CPI measures lag Apartment List by 15 months, Zori by a year, and NTR by 9 months.
So, is the lead time 9 months or 15? More importantly, how much does it matter?
What Percentage of People Move?
- Shyft Moving says 9.8 percent move each year.
- According to an analysis of 2022 U.S. Census Bureau data published by Brookings, overall migration within the United States was 8.7%.
On the basis on what 9 percent of people do, with peak moving months between Mid-May and Mid-September, economists are attempting to predict rents for the remaining 91 percent of people who stay put.
New leases have been rising at a much faster pace than a blend of new and existing leases.
Apartment List, Zori, and NTR all use methodology that compares the same or similar unit over time. But NTR says the peak year-over-year rate was 12.15 percent while Zori and Apartment List are much higher at 16.27 percent and 18.10 percent respectively.
NTR was created in conjunction with the BLS, using similar methodology.
Only a Decline in Gasoline Prevents a Hot CPI
On December 12, I noted Rent Jumps Another 0.5 Percent, Only a Decline in Gasoline Prevents a Hot CPI
Rent, which is sticky, rose at least 0.4 percent for the 28th month.
A Curious Claim that 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
The belief is based on huge declines in new tenant rent indexes. But which one of the indexes is right and what is the lag?
In particular, note the confidence level interval or NTR from -0.73 to +6.20.
As more data comes in the confidence level will increase. But NTR which is supposed to be a timely measure now lags the CPI by a quarter.
What About Algorithms?
Please consider Rent Going Up? One Company’s Algorithm Could Be Why.
On a summer day last year, a group of real estate tech executives gathered at a conference hall in Nashville to boast about one of their company’s signature products: software that uses a mysterious algorithm to help landlords push the highest possible rents on tenants.
“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.”
For years, RealPage has sold software that uses data analytics to suggest daily prices for open units. Property managers across the United States have gushed about how the company’s algorithm boosts profits.
“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.
“Machines quickly learn the only way to win is to push prices above competitive levels,” said University of Tennessee law professor Maurice Stucke, a former prosecutor in the Justice Department’s antitrust division.
One advantage RealPage’s data warehouse had was its access to actual lease transactions — giving it the true rents paid, instead of simply those a landlord advertised, RealPage said.
Zillow Uses Listed Rates
“Zillow Observed Rent Index (ZORI): 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.”
Zori says it uses listed rents in the 40th to 60th percentile range, not actual signed rents. And it does not include renewals at all.
It’s tough to discount 28 consecutive months of rent going up at least 0.4 percent unless you think the BLS is overstating rent.
What About the Massive Amount of Units Under Construction?
Another popular idea is that rents will decline once housing units are completed.
This sounds very reasonable but a chart of the results shows something else.
Housing Units Under Construction vs CPI Rent Year-Over-Year
For discussion, please see When Will Record Housing Units Under Construction Ease Rent Inflation?
The data shows no discernable correlation no matter how you shift the lead or lag times.
The chart looks totally random. So perhaps rent abate. Perhaps not. The data itself provides no reason to believe anything.
But please note the floor. Year-over-year rent has a floor of about 2 percent except in the Great Recession housing crash.
Would a 4 percent rate of rent increases please the Fed? 3 percent?
Are Rents Poised to Drop? Stabilize? What?
I don’t know, nor does anyone else.
Year-over-year rents have peaked, but a lot of that is easy year-over-year comparisons.
Looking ahead, I am finally in the camp that we will break the string of big rent increases. Previously I had been a doubter. However, all such expectations have been wrong for two years.
Rent slavery is exactly what the bloaters want as they usher in their new, improved, high tech version of medieval feudalism.
“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%…
An advertisement for governmental rent control policies. Algorithm that.
“When will record housing units under construction ease rent inflation?”
Last month saw a record influx of 276,000 illegal aliens. How can record housing units under construction keep up with that which is being promoted by Marxist Democrats?
Over the last few years millions of people have poured into the United States. They have to be staying somewhere, driving up demand.
This is exactly what I’ve been telling everybody, the talk of the inflation beast being slayed is premature. Only the reduction in oil prices over the past few months have kept inflation cool. All it would take is a major escalation of a Middle East war for this to reverse in a big way.
One obvious question is – where do all these illegal immigrants go?
Was there overcapacity in the housing and hotels sector?
Who is paying for the accommodation for illegal immigrants? The taxpayer through debt? Is the candle being burnt at both ends – with shortage of supply for citizens, putting the price up for citizens, and then citizens being taxed to pay for the cause of shortage of supply, doubling up that effective rent-seeking taxation to keep accommodation prices elevated? Who is benefitting from this exploitation of taxpaying citizens and illegal immigrants? Why, it couldn’t be housing and hotel owners. now could it?!
That paints a bleak picture. Just when you get used to the open border causing huge increases in drug trafficking, human trafficking, and crime … you get more good news.
10+ to a house,
I have a friend who finances Cuban illegals to enter the country through Mexico. He lives in Naples, Florida where he owns a construction business. He owns multiple older apartment buildings where he houses these folks. He also provides them work in his business. His costs of moving them here and providing a place to stay are a debt to them. They pay him back by working for far less than minimum wage for a few years. He makes sure local politicians and law enforcement get fantastic rates on any work that needs to be done. Once their debt is paid off, he’ll help them get into a decent apartment, find better paying work, and bring their families over. Yes it takes some jobs away from locals, and some apartments. But he builds more high-end apartments than the low-end one’s he provides for his workers. And one of his rules is no drugs other than marijuana, buying, selling or using. He doesn’t need the attention. I suspect this is how it works for illegals most places. How else could they survive?
What makes you think any of us will survive. Doing something that is dangerious and hasn’t crashed yet, is not the same as being safe. Your friend should be parachuted into Cuba.
PS – Owning your own home is the best kind of Preping for a disaster
That’s funny, indentured servitude, slavery and human trafficking are illegal for a reason and are not a benefit to society. Those same people also fall into welfare and use public resources without paying a fraction of the requisite taxes, drive up insurance premiums all so your friend can make more money than following the law. Your friend belongs in prison.
The banks and professional real estate people have been trying to bully and frighten individual home owners with all this talk about another crash.
Its not happening.
2008-2009 was characterized with liar loans and subprime borrowers. But there is not any of that today, thanks to banking regulation reforms. What the USA has today are already huge numbers of single family homes in the hands of REITS and other Wall Street entities, and then many many in the hands of small investors who realize that single family homes are just about the best way to protect against inflation, and we all know that the politicians in Washington are not finished with overspending and eternal war and running up the national debt and having to print their way out.
I wont sell til I die, and I doubt very many others will either.
re: “2008-2009 was characterized with liar loans and subprime borrowers.”
The GFC was radically different than C-19. The “means-of-payment” money supply matters. It was held constant for 48 months during the GFC. Powell has held it constant for 21 months. The rise in aggregate monetary purchasing power dropped during the GFC. AD has only decelerated during C-19.
And with the outsized fiscal deficits, we dare not have a recession.
When revenge tourism stops airbnb apartments/houses will turn into rentals. When vacancies rise over a month owners lose 20% of their annual income ==> rent will be reduced to cut losses.
30% of housing in Sarasota, Florida is listed through Short-Term Rental agencies (AirBNB, etc…). That has caused an 80% increase in housing prices in just two years. At least in high tourism locales, I’m betting that STRs are driving prices.
Rents are going to remain high for the forseable future. 1. Supply and Demand 2. Increase in Property Taxes 3. Increase in Homeowners Insurance 4. Inflation/Increase in costs of maintenance/repairs.
Let me summarize the non-politically correct, hot potato reason with four words:
14 MILLION ILLEGAL IMMIGRANTS
In addition, the labor market has remained quite buoyant. This isn’t rocket science, people.
Rent must also keep pace with hyper inflation. Rent should increase ~20% per year under Biden.
When they are house touring the north Chicago burbs I hope they appreciate the fine copper gutters and downspouts.
Even sandwiched 10 to a house the numbers crossing the open border will require 1000 houses/day of extra housing.
Sure they will live in third rate rundown dumps but that reduces the supply at the bottom end of the market leaving less for the working poor. Then those working poor will have to somehow find the money to rent the next tier up and competing against the lower middle class. Or they end up living in their cars or are homeless.
Add in a decline of the USD by 10% and inflation will get another boost.
So higher rents foreseeable until the economy slams a wall.