“Inflation hasn’t peaked yet”: Rents continue to rise, putting potential home buyers under pressure. This is bad news for the Fed.

Rents will continue to rise through the end of the year, adding to inflation, economists say.

With home prices and mortgage rates so high, many prospective homeowners are choosing to rent longer and wait for prices to normalize. But rents are also rising, supported by a housing shortage this raises the cost of living for millions of Americans. The national average monthly asking rent even surpassed US$2,000 for the first time in May. according to Redfin,

It all feeds inflation, the very enemy the Federal Reserve is trying to target. Accommodation, including rental costs and the corresponding rent of owners, or what a homeowner might rent their property for, accounts for about a third of the consumer price indexan important indicator of inflation.

In the first half of this year, rents increased nationwide by 5.4% according to a report according to apartment list. While that’s actually a slower increase than the rise in rents over the same period last year, big cities are still seeing some absurd swings in rental prices: Rents in New York City, for example, are up 27% over the past year, Apartment List said. Greater San Jose has seen the fastest rental growth over the past six months, while prices in Boston, Seattle — and even smaller markets like Hartford, Connecticut, and Providence, RI — are also rising.

“Rents are rising as housing is still scarce; Also, prices are going through the roof,” Jennifer Lee, senior economist at BMO Capital Markets, told MarketWatch.

“Given that apartments or the owners’ equivalent rent account for over 20% of the CPI index, yes, that’s worrying as it will add to the already high inflationary pressures.”


– Jennifer Lee, Senior Economist at BMO Capital Markets

“Given that apartments or the owners’ equivalent rent account for over 20% of the CPI index, yes, that’s worrying as it will add to the already high inflationary pressures,” she added. “Another sign that peak inflation isn’t here yet.”

With house prices showing signs of falling in some overheated markets, there could be some relief for renters.

“We find that house prices are ahead of rents by at least 12 months,” Kathy Bostjancic, chief US economist at Oxford Economics, told MarketWatch.

“Eventually, a slowdown in home price gains should lead to a slowdown in rental prices — likely sometime in mid-2023,” she added.

Even so, inflation could continue to incinerate low-income people and people of color — who were already having a disproportionately hard time staying currently with their housing payments during the pandemic – in the following months.

A household is considered cost-burdened when it spends more than 30% of its income on rent — a reality for about 46% of renters in 2019, according to the Harvard University Joint Center for Housing Studies. That year, low-income renters made up 62% of cost-burdened households and 86% of households spending half or more of their income on rent.

For these families, even a small rent increase can spell disaster as they may not have the financial flexibility to make it happen.

https://www.marketwatch.com/story/peak-inflation-is-not-here-yet-rents-continue-to-rise-putting-pressure-on-would-be-homebuyers-thats-bad-news-for-the-fed-11657129559?rss=1&siteid=rss “Inflation hasn’t peaked yet”: Rents continue to rise, putting potential home buyers under pressure. This is bad news for the Fed.

Brian Lowry

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