The cost of housing directly impacts METARs who are renting or buying housing. METARs are indirectly impacted since housing costs are a large part of inflation indexes – and the Fed will continue to raise the fed funds rate until inflation is brought to 2%.
Expect stock prices to continue falling as the fed funds rate rises, even though the market has had plenty of warning.
**Housing Could Provide More Fuel for Inflation** **Other consumer prices might need to post big drops for the Fed to see overall inflation fall** **By Nick Timiraos, The Wall Street Journal, July 12, 2022**
**...** **Housing inflation is important because it represents around two-fifths of core CPI and one-sixth of the Fed’s preferred inflation gauge, the personal-consumption expenditures price index....**
**Because of the way the Labor Department captures rental prices, rent inflation could continue to rise this summer before peaking at around 6.5% over the next several months. That would be a 36-year high....**
**Federal Reserve Bank of San Francisco economists have estimated that higher housing costs could add around 1.1 percentage point to the CPI in both 2022 and 2023. They could add around 0.5 percentage point to the PCE price index in each of those two years, a large amount considering the Fed target is 2% inflation.... Demand for rental housing could continue to rise, keeping rents high. “These rent-based components in the inflation indices are likely to prove relatively impervious to the tightening in financial conditions we’re seeing right now...”** [end quote]
The takeaway from this article is that the rental component of CPI and PCE inflation will probably stay high for a while. It’s not as responsive to mortgage rates as owner housing.
The Bay Area is the last place in the U.S. with rental prices below pre-pandemic levels, according to a new report from Apartment List. That seems like a rosy headline — for us renters at least — but the question remains how long the “depressed” prices will last.
Because of the way the Labor Department captures rental prices, rent inflation could continue to rise this summer before peaking at around 6.5% over the next several months. That would be a 36-year high…
According to an article I read this morning, our area is projecting increasing housing and rental prices for another 2 years. The blame is being put on delays due to supply chain constraints and labor shortages, as well as a lack of building during Covid which put us behind in keeping up with demand.
Home sales prices here continue to escalate in a crazy way. The rental we sold in April, the first in the neighborhood for over $500K, was followed by 3 comparable sales over $600K in May. A home down the street from our residence listed at $519K and sold a week later for $665K! It is a market that is highly constrained to new builds, however, with results that are unlikely to be able to be extrapolated nation wide, at least to the degree of rise. The upward trend, however, is likely to be experienced elsewhere as well.
Many months ago I stated on these boards that I did not expect a decline in home prices based on interest rates ticking up, at least until the demand supply imbalance was corrected. I don’t see enough supply coming on line to correct that imbalance in the near future. I think that rent inflation will continue for a few years, not several months.