A deep dive from Wolf Richter at Wolf Street, February 15:
The numbers are already baked in and will show up over the next 24 months.
Two rent factors account for 32% of the Consumer Price Index. Despite the massive spike in “asking rents” across the US, those two CPI rent factors have been much lower than CPI and have thereby repressed CPI so far. Unlike asking rents, these two rent factors track the average rent that tenants are actually paying across the entire stock of rental units in US cities, including in rent-controlled units.
On the other hand, “asking rents” reflect current price tags on units listed for rent that people have not yet rented, and it takes a while for people to rent these units and pay those rents in large enough numbers to where they move the needle of the average rent actually paid across the entire stock of US rental units, which then gets picked up by the CPI rent measures.
But those two CPI rent factors are bound to catch up with asking rents and they will then fuel overall CPI – which was already 7.5% in January, WHOOSH.
But when will the spike in asking rents drive up CPI? And how much will it add to CPI?
The short answer: The current spikes in asking rents that have already occurred through January 2022 will add more than 1 percentage point to overall CPI for the year 2022, and will add more than 1 percentage point to overall CPI in 2023, even if asking rents don’t rise further from here. This is already baked into the numbers. CPI is going to catch up with a painful reality spread over the next two years.
The asking-rent spikes are brutal.
Rents for single-family houses and condos on the rental market exploded by 12% year-over-year in the US, varying widely from city to city, the worst increase in the data which starts in 2004, according to CoreLogic today. Miami was on top of the list, with a 35% spike in rents. In the years between the Financial Crisis and the pandemic, rents of single-family houses in the US had been increasing in the 2.5% to 3.5% range.
Rents in apartment buildings – does not include single-family houses and condos for rent – jumped by 12% for one-bedroom apartments and by 14% for two-bedroom apartments on average across the US, according to Zumper data. In 20 of the 100 largest cities, rents spiked by 20% or more, and in 11 of them, rents spiked by 25% or more. This is based on median asking rents, which are the rents landlords advertise for their listings. They’re similar to price tags in a store.
By a different measure, the Zillow Observed Rent Index, rents in January spiked by 14.9% year-over-year across the US, varying widely among cities.
All these measures show the same thing: On average, rents across the US spiked by over 12% year-over-year, varying widely from city to city, with some cities experiencing astronomical rent increases.
Asking rents take 24 months to spread across CPI rent inflation.Asking rents are the current price tags. They don’t show up in rent inflation until enough people signed leases for units at those rents, and are actually paying those rents in large enough numbers to move the needle for the entire stock of rental units in US cities....
....MUCH MORE
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Soaring rent increases will hit the Consumer Price Index with a lag of up to eight months
