The Philadelphia Fed All Tenant Regressed Rent index suggests rapid deceleration in rent increases, perhaps even declining. 
Chart Notes
- ATRR is an index created by Philadelphia Fed economists in cooperation with the BLS. It includes both new and existing leases unlike flawed models based on new leases only.
- Rent is the BLS measure of non-owner occupied rent, the typical apartment lease. It’s called rent of primary residence.
- OER stands for Owners’ Equivalent Rent. It is the BLS measure of the rent someone would pay to rent their own house, unfurnished, without utilities.
Contrary to popular myth, the BLS does not use homeowners’ estimate to determine price. The BLS does use homeowner estimates to set weights, but not the index.
Rent and OER are very lagging measures due to BLS smoothing. This is because people pay rent monthly not a year in advance.
ATRR leads rent and OER by a quarter.
Disentangling Rent Methods
The BLS does a good job explaining the lead-lag issues of various methods in a white paper Disentangling Rent Index Differences: Data, Methods, and Scope
Prominent rent growth indices often give strikingly different measurements of rent inflation. We create new indices from Bureau of Labor Statistics (BLS) rent microdata using a repeat rent index methodology and show that this discrepancy is almost entirely explained by differences in rent growth for new tenants relative to the average rent growth for all tenants. Rent inflation for new tenants leads the official BLS rent inflation by 4 quarters.
Why are these alternative rent measures reading so much hotter? Is the divergence because these measures focus on different segments of the rental market? The CPI rent sample is fully representative of the rental housing stock in US cities. In contrast, the Corelogic Single Family Rent Index (SFRI) covers mainly higher-tier detached rental units that advertise in the Multiple Listing Service (MLS), and the MRI covers larger apartment complexes in a restricted number of cities (Ambrose et al. 2018).
The paper was written in October of 2022 when Zillow and other new lease measures were jumping wildly. The reverse is happening now.
Five Rent Indexes Year-Over Year 2024 Q2
Zori stands for Zillow Observed Rent Index. Apt List is Apartment List. NTR is the Philadelphia Fed component measure of new tenants only as opposed to the lead chart of all tenants.
Zillow and Apartment List have a lead time of over a year, but are wildly on the high side.
Inflatiionistas were mistakenly howling about 17.8 percent rent increases in 2021. And then Deflationistas started screaming two years ago the Fed should be cutting.
Ironically, those other measures are so flawed, the BLS measures appear to be much better, just more lagging. What a hoot.
The problem with alternative measures like Zillow and Apartment List is they represent new leases only although only 10 percent of the population moves in a year.
This creates huge jumps and subsequent declines not at all reflective of the overall market because increases and decrease change more than leases for existing tenants.
The upward year-over-year slope on Zillow and Apartment List is amusing. Also note that Apartment List says year-over year prices are -0.8 percent, while Zori of +3.4 percent and NTR is -1.1 percent.
Are any of them right?
NTR Confidence Range 2024 Q2
Further adding to the unreliability of new lease measures, note the confidence range of the Philadelphia Fed NTR data is -3.53 percent to +1.32 percent.
I suggest throwing all of this new lease info in the ashcan where it belongs or at least weighting the data at no more than 10 percent.
With that, let’s return to ATRR, a genuinely leading (although volatile) indicator of CPI measures.
All Tenant Regressed Rent Index vs CPI Quarter-Over-Quarter
That is the chart that made me stand up and say whoa Nellie.
The quarter-over-quarter ATRR measures are more volatile than I like, but they are quickly mean-reverting. I suspect volatility is due to the NTR component where confidence ranges improve over time.
Once again, note the lead time of ATRR over rent and OER of about one quarter. This is very useful.
All Tenant Regressed Rent Index vs CPI Rent Index 2024-Q2
NTR peaked three quarters ago. ATRR peaked one quarter ago. Together they suggest flat to slightly declining measures of rent and OER starting soon.
I am not sure why ATRR tracks OER more closely than rent but that’s a good thing from the point of predicting where the CPI is headed given the huge weight of OER in the CPI.
OER is the largest component of the CPI with a weight of 26.8 percent. Tack on another 7.6 percent for rent of primary residence and you are at one-third of the CPI.
Rapid Cooling of Rent Inflation
Based on the above data, I expect a rapid cooling of CPI year-over-year measures of both rent and OER.
I think we start to see this in the next CPI report on September 11. If not, then October. This is one of the reasons I have been expecting the Fed to cut 50 basis points this month.
I will put some numbers on a CPI estimate on Monday. I expect to be on the low end of economic forecasts, perhaps the lowest.
As always, I can be easily wrong. The most likely way is to be early once again because this data is very compelling.
Things Consistent With Recession
- September 3: Construction Spending Growth Slows in May, Stops in June, Negative in July
- September 5: Fed Beige Book Shows Flat or Declining Economy in 9 of 12 Fed Districts
- September 6: Payroll Report: Manufacturing Sheds 24,000 Jobs, Government Adds 24,000, Big Negative Revisions
I would not be short bonds heading into the next CPI report.
Sharply? I seriously doubt it. There is still a lot of catch-up for continuing leases, and many (not all) landlords are going to try and get those rent increases in *now*, knowing that draconian price controls are likely to be coming when the Democrats get re-elected. There is no ‘if’ because it’s “fraudulent voting” fact, not conspiracy. At every turn, the Democrats are blocking the ability to verify voter identification. There is no reason to do that in the real world vs the fantasy make believe reasons the Democrats give. Ask your black and Hispanic friends if they have an ID. Every one will say yes, unless they are “undocumented” illegals, *maybe*. Most illegals also have identification.
Rent is going to keep going up due to interest rates and a need for constant increase on property valuations. It it goes up $399.99 instead of $400.00 then that fall in inflation would only matter to a sophist.
Homes for sales are different than homes for rent. Home for sale : homebuilders will get up to 40% loan to start a project. The rest have to financed either by the builder own capital or by selling a few units. When homebuilder proves that he sold a few houses the bank will cont to finance him. Homes/ apt for rent are more risky, bc there are no sales. Builder that don’t have enough capital the bank will shut them down. The gov have to provide those loans.
Land/apt in the suburbs are very expensive. In the flyover areas the cost of Land/apt
is rising, prohibiting new projects. The carry cost of land/apt bought years ago is x8 more expensive today.
If a landlord started 4 tranches of homes for sale or rent and one or two fail and he doesn’t have the capital he produces skeletons. // If the gov provides cheap land/apt and the Fed cuts rates many new projects will start. With the gov boosters and higher wages workers can buy houses and start a family. A good economy lift all workers.
Nobody knows the rental market better than the property owner. Property management companies drive up rents and lower profit considerably. What percent of rentals are run/owned by large businesses? Problems will always come from there.
Prices are reducing because demand remember supply and demand?
Homes are good collaterals. Homebuilders pay higher interest on land/house bc land/house isn’t a good collateral. Smaller sqf houses can improve this ratio.Today interest payments on land bought a few years ago are x8 times higher. Land for construction is a cost center doing nothing all day. Architects cost more. The cost of hvac, electrical engineering and wiring, which are about a 1/3 of the budget, are higher. Lumber plunge from 2,000 to 500. Labor cost is higher than 3/4 years ago. If the down payment is too low home builders cannot complete their projects. Banks will never lend more than 33%/40% of the project. Homes for rent zombies rollover rent
by more than 1.5%.
not sure why this is new downvotes. ??
BLS knows nothing about 5/7 millions new immigrants in the labor market. They eat, rent and spend, packed like sardines. Many medium size landlords of multi units 5+ in the flyover areas have their own waiting list, but lately turnover is rising. They don’t advertise in MLS. Rent is market price of certain cities or areas. New leases set market price, as new home sales set home prices. Thus NTR (blue) is rent. NTR is (-)1.1%. But existing tenants will never get a 1.1% discount. Their rent will rise. Conservative landlords always lag NTR and treat their tenants well. NTR is elastic. Existing tenants leases are inelastic. Thus during recessions rent is rising. When angry tenants leave filth and destruction set in. When existing tenants arrear landlords start begging and praying. Nudging is cheaper than evictions. When landlords apt/houses are captive, when their half a million assets are in tenant pocket ==> banks takeover. Or the gov. NTR y/y is a lower low, lower than 2020 low !
I noticed 3 bedroom, 1 car garage townhomes on east end of Panama City Beach listed for $1900 a month. They were renting for $1400 a month in 2016, so rent has gone up about 4% a year for these townhomes.
When hurricane Matthew hit FL from the right and Hermine hit Tallahassee from the left.
thats $3,000 in my area
Why will rents drop? Less renters? More housing available? If you are a renter then you have to rent, unless conditions change and suddenly you become rich
Or move back home with parents or other family members if you can’t afford to rent.
You could live in your van down by the river under the bridge.
In SF young engineers pack it up like sardines. Their income is high, over $100K/Y, but not good enough. They prefer to be independent. That’s why they have a wonderful relationship with their parents.
“In SF young engineers pack it up like sardines”
And hence why, by now, an average Chinese farming village has more interesting technological development going on, than the entire San Francisco Bay Area combined.
Aside from moving in with family renters can also get a roommate or downsize in other ways like into a trailer, car or box on the street. The market isn’t perfectly inelastic.
This is why politicians – especially those from the stupid party – are dumb to focus on particular aspects of inflation when attacking the opposing party. If you talk about high gas prices, does that mean your opponent should win if gas prices fall? Same with bacon or even rent. If Trump can’t explain why Harris would be horrible, he doesn’t deserve to win.
I have family with hundreds of residential rental units, and he has said rents have been falling for at least the last year.
Trump should easily be able to explain why Harris would be horrible. Doesn’t mean he will, but he should be able to.
And while Trump doesn’t deserve to win (regardless of whether he can or will explain how awful Harris is), Harris also doesn’t deserve to win — so you need a better criteria if you’re picking a candidate. It’s a tie for the “deserves to win” criteria. I propose a “would do more damage to country than opponent” criteria, and suggest that Harris and her Party have shown they’re much more capable of doing more damage. They routinely do this by damaging the country in permanent ways. Nothing Trump did lasted very long — the only things long-lasting from his Presidency are his court picks, and those are shaping up to be among the more reasonable things he did.
RFK Jr endorsed Trump because he’s the lesser of two evils.
Dick Cheney endorsed Harris because she’s the greater of two evils.
Anyone voting the same way as Dick Cheney should rethink their choice.
well said
How did you go from so wrong to so right in the same thread?
lol. I’m not sure what irked people about my first comment. I just don’t like to see GOP politicians talk about stuff like the price of eggs. Then egg prices fall and they have egg on their face.
why we`re left to always choose between two evils..?
1) #DumbAge.
2) The Fed. Which has, by now, pretty much achieved complete success at ensuring there is a perfect negative correlation between intellectual ability on one side, and wealth/power/influence on the other.