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    Rent is too damn high. It’s keeping interest rates elevated, too
    • March 13, 2024

    Some analysts note that inflation rates are boosted by just a couple of factors, especially shelter prices.

    In short, the rent is too damn high — and it’s keeping inflation and interest rates elevated alongside it. Some analysts think that it’s going to stay that way for a while.

    Rent has increased significantly over the past year. And despite the Federal Reserve’s best efforts to bring it down, it isn’t budging as quickly as expected.

    Shelter costs — which make up about 30% of CPI — are one of the biggest drivers of services inflation and one of the biggest costs and most essential items for Americans.

    Over the past year, about two-thirds of the increase in core CPI came from shelter alone, said Greg McBride, chief financial analyst at Bankrate, in a recent note.

    Bank of America analysts say “shelter inflation has been a big focal point for the market.” And they expect that to persist this year “and think that services inflation moderation is likely to be slower than the market expects.”

    Optimism and pessimism

    Fed Chair Jerome Powell said at a January press conference that an ease in shelter prices is imminent.

    “We think that’s coming, and we know it’s coming,” he said. “It’s just a question of when and how big it’ll be.”

    An eventual shift to lower rents is in “everyone’s forecasts,” said Powell.

    Well, not everyone.

    Some economists aren’t expecting a drop anytime soon. “We remain confident that [rent prices] will flatline in 2024, rather than fall,” Capital Economics analyst Thomas Ryan wrote in a recent note.

    Rent isn’t like other consumer goods, said Ritti Singh, an organizer with Housing Justice for All. “Once it goes up, it stays up.”


    Landlords across the country, said Singh, have been using inflation as an excuse to raise rents exorbitantly without real cause.

    Many landlords were forced to raise rents to cover increases in mortgage costs or repair costs, but the majority of localities don’t have laws that regulate how much they can increase rents in a single year. Zillow economists have found that current asking rate rents are up 29.9% since the beginning of the pandemic.

    Singh believes that the Fed alone won’t be able to effectively drive down rental inflation. There needs to be local legislation to regulate what landlords can raise rents by as well, she said.

    Weird data

    Some economists say that CPI data is skewed and can paint a false picture of how high inflation currently is.

    The CPI tracks rents that renters pay, but the majority of shelter costs in the index come from something called owners’ equivalent rent. Instead of factoring in the cost of purchasing a house, the index attempts to factor in how much rent homeowners would pay if they rented rather than owned their home.

    The thing is, homeowners do own their homes. Inflation on hypothetical rent prices for homes they don’t rent isn’t actually being felt. Plus, rent and home prices don’t always move in sync, and so this can create a false equivalency.

    The data could also be lagging.

    Research by Goldman Sachs and the Dallas Fed finds that actual rent and owners’ equivalent rent lag the rest of CPI by a full year. That means a current deceleration in rent prices won’t be fully factored into inflation data until February 2025.

    So even though data shows that rents across the US cooled last month, dropping for the sixth month in a row nationwide, and providing a bit of relief to renters, that won’t show up in CPI data for a while.

    2024 economic forecasts


    Chapman: ‘Very slow growth. No recession’


    CS Fullerton: ‘Cracks’ will widen to a mild recession in late 2024


    US Realtors: Housing rebound from 2023’s dismal sales


    California Realtors: Rising prices, sales in 2024


    USC: SoCal rents to rise 2-4% a year through 2025

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    ​ Orange County Register