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Latest Consumer Price Inflation

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest on industrial production data.

  • Homeowner equivalency rent is rising at its highest pace in 6 years. The latest rise of 2.4 percent in December from 12 months ago is a pace that has not been seen since the autumn of 2008. Moreover, the trend is accelerating such that an over 3 percent gain in this figure is likely by this time next year.
  • Apartment rents are also rising solidly with a 2.8 percent gain, which would be near a 6-year high. This is market exchange. The homeowner equivalency rent is not the market rate but imputed based on what homeowners would be able to charge if they were to rent out their home.
  • Medical services are rising at the slowest pace in about 40 years. It is unclear what is going on here or whether it will trend higher next year.
  • Gasoline prices were 6 percent lower than one year ago. Massive oil production from North Dakota and Texas has been contributing to added supply in the market.
  • Some prices are accelerating while others are holding steady or slipping. The broad overall consumer price inflation, for example, was minimal at 1.2 percent.
  • The Federal Reserve wants to see the inflation rate at around 2 percent. It considers the 3 percent inflation mark as the red line not to cross. However, the biggest weight on consumer price inflation is from rents. If the rising trend continues and if there is a reversal in energy prices then inflation will easily cross the red line by the end of next year. The Fed will have to be less accommodating in its monetary policy. In short, mortgage rates will be rising in upcoming years.
  • Expect a 5.2 to 5.5 percent mortgage rate on a 30-year fixed by the end 2014, and higher than 6 percent by the end of 2015.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

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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