According to the latest data from Apartment List, rents have fallen for six straight months and rose slightly in February. Nationwide, lease rates are down 1% from a year ago, with more than half of the nation’s largest cities seeing declines. In Austin, costs fell 6.7%. in Atlanta, it’s 5.3 percent; and in Nashville, it was 5.1 percent.
It’s the kind of turnaround strategy housing experts are closely tracking with real-time data, especially as hundreds of thousands of new homes hit the market and supply increases after years of shortages. . Unlike the frenzied days during the coronavirus pandemic, demand has also calmed down as tenants are staying put.
But that change doesn’t show up much, if at all, in official inflation reports. The main indicator of housing costs rose in January compared to the previous month. Also, according to CPI, shelter costs are up 6% compared to a year ago, down from his 8.1% peak but still well above normal.
Economists are quick to say: The pivot is coming, and January’s statistics often show seasonal glitches that push up inflation. They also claim that real-time metrics just take longer to break through the weird math behind BLS calculations. Part of the reason is that individual units are only collected in his six-monthly inspections, even if lease rates change along the way. Additionally, the BLS tracks rent for all tenants, not just those who start new leases. If you stay in your home for more than a year, your costs may not change as quickly.
But experts and policymakers are puzzled over why the divide remains so stark each month.
“We’re seeing big mountains of snow melting. If you look every 10 minutes, there’s still big piles of snow,” said Igor Popov, chief economist at Apartment List. . “We’re just watching closely, so I don’t feel like we’re seeing much progress.”
Overall, inflation has made significant progress since rising to its highest level in 40 years. Energy prices have fallen significantly since they soared after Russia’s invasion of Ukraine. Supply chains have recovered enough to keep prices down for all kinds of goods, from electronics to bicycles. Central bankers are considering multiple interest rate cuts this year after months of improvement, although inflation gradually lost some of its progress in January.
Still, housing continues to drive up overall inflation. And the longer it goes on, the harder the Fed’s fight against inflation could become.rent It accounts for the majority of CPI. In other words, the Fed won’t be able to bring overall inflation down to normal levels until the housing situation is resolved. (The Fed prefers to use a different measure of inflation than the consumer price index, but the central bank’s preferred measure, personal consumption expenditures, also has a heavy weight on housing.)
Part of the puzzle is that inflation changes slowly. Economists know that even if real-time rents are stable or falling, we need to look far ahead for the changes to become larger over time.
Orphe Divounguy, senior economist at Zillow, hypothesized that market rent growth would stop completely. Still, he would need two more years of flat readings to bring the shelter-wide index down to his more normal 2%.
“The power of shortage is that strong,” Divonguy said.
The housing market has changed completely during the pandemic. But experts say that prior to that, housing construction had been stagnant for years or even decades. So when the pandemic hit, there wasn’t enough housing in this country. Starting in 2020, people suddenly wanted to move quickly, get away from their roommates, and stretch out into more space. Eventually, the surge in demand collided with the lack of demand. supply.
Eventually, new projects broke ground as supply chain backlogs cleared and construction employment increased. As part of that catch-up, hundreds of thousands of cars debuted last year, with another million planned for 2024. Analysts expect prices to fall further as inventories continue to rise.
However, other parts of the housing market have not performed as expected.High interest rates generally slow down the home buying market It raises mortgage rates and makes it harder for buyers to buy a home unless prices come down. However, the sector has been surprisingly resilient, with house prices still rising slightly even as mortgage rates hover around 6% to 7%.
Still, the Fed remains confident that rent inflation will be overcome. Fed Chairman Jerome H. Powell said in a January press conference that “everyone expects” a shift to eventually occur.
“We think it’s coming, we know it’s coming,” Powell said. “The only question is when and how big.”
Much of this country may already be there. Take Florida, for example. Highest rent growth during pandemic surge. Supply is growing rapidly, with Miami and Orlando both having more than 20,000 apartment units under construction, accounting for more than 10 percent of total inventory in those markets, according to the Florida Apartment Association.
Rent prices are currently falling in major cities in Florida. Jacksonville rents have fallen 3 percent compared to last year. Orlando experienced a similar decline.
Even in markets where rents are still rising, the increases are much more modest. In Miami, rents increased by about 4% at the beginning of 2023. One year later, prices had increased by only 1 percent. 1.7%.
“We understand that we need a rubric that works to report a broader set of data,” said Chip Tatum, executive vice president of the Florida Apartment Association. “But when you break it down to a more granular level, it’s much more complex than the data set suggests. The lag doesn’t necessarily match what the market is telling us to do.”
This situation is part of the reason economists remain optimistic that the delays will eventually be overcome. Jay Ribic, national director of multifamily analysis at CoStar, said it typically takes about three-quarters of a year for market rents to be reflected in government statistics. Given how abnormal the economy has been and how far off the models have been as a result, that timeline may be stretched further. But hopes are not dashed yet.
“The method is [CPI] “I think about housing in general,” Ribic said, “and it just doesn’t seem to match reality.”
