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Inflation

  • Overall inflation was tame in October, rising only 0.1 percent from the prior month and a manageable 2.2 percent from one year ago.
  • However, the rent component rose at the fastest pace in 4 years.  The monthly rent increase of 0.4 percent is the strongest monthly gain since 2008, while the 12-month rent increase of 2.8 percent matches the fastest in 3 years.  Rents are accelerating because of a tighter vacancy situation.
  • The fuzzy and hypothetical ‘homeowner equivalence rent’, which is what the homeowners would pay to rent out their home, increased a much slower rate of 2.2 percent (and not 2.8 percent as paid by tenants).  This figure carries the largest weight in the overall inflation measurement and is only an estimate because it is a hypothetical.  Homeowner equivalence rent, however, should be closely matching up with tenant rent trends.  It is not.  So overall inflation is being held down because the biggest weight to the broader inflation is perhaps being underestimated.
  • Housing starts are still well below the historical normal and trailing household formation, so further and even higher rent gains in upcoming months are near certain.
  • As for other inflation data, the core inflation after subtracting out the volatile energy and food prices rose by 2.0 percent.  This poses no problem for the Federal Reserve and is at essentially its preferred rate of inflation.
  • Prices of furniture rose by 1.6 percent from one year ago, while that of appliances rose by 0.8 percent.  Gasoline prices were up 9 percent, while price of electricity and utility gas service fell.
  • The growth of wages in the past 12 months was only 1.6 percent, so an average person’s standard of living fell in the past year as consumer prices rose faster.

Lawrence Yun, Chief Economist

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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