Sunday, June 21, 2015

Apartment Rent Inflation and the Federal Reserve

New Deal democrat at the Bonddad blog:

The Fed vs. Millenials: inflation and the apartment boom 
Should the Fed raise rates when inflation is being driven exclusively by a necessity, and demand for that necessity is being driven by demographics?

Just as with Boomers 50 years ago, the Millennials have reached the age where they are moving into their first residences.  This has created a boom 
in multi-unit dwellings:

 and has driven median asking rents to record inflation-adjusted highs.

At the same time, the CPI less shelter is the most negative it has been in 60 years (-1.3%) excluding the bottoms of the 1950 and 2009 recessions.  In other words, the only important driver of inflation right now is Owner's Equivalent Rent, as shown in this graph comparing CPI for housing (red) with CPI for everything else (blue):
Notice what happened from the late 1960s through the early 1980s as the Boomer generation reached initial apartment/home buying age. The same contrast is appearing now....MORE

Aug. 2014
Owner-Equivalent-Rent Inflation is Probably Not a Blip
Feb. 2015
The Rent Is (Going to Be) Too Damn High 
April 2015 
Housing Prices Begin To Feed Into Official Inflation Figures