There is no inflation to speak of, but rents are now rising at the fastest pace in nearly seven years. The smiles from lower gasoline prices are quickly getting cracked by the hard squeeze on higher housing cost, which is the largest expenditure of most people’s budget.
Specifically, the overall consumer price index grew by 0.2 percent. Gasoline prices were 22 percent lower compared to one year ago. But rents grew by 3.6 percent, the fastest rise since November 2008. Given that rents are rising at twice as fast as wage growth, it will make it difficult to save up for down payment by first-time buyers.
Homeowners’ equivalence rent is a funny figure of what the homeowner would hypothetically pay to rent out their home. As can be imagined one can question about how this is measured or how accurate it is. At a minimum, though, it should follow the trend in apartment rents and that is what’s happening. Owner equivalency rent rose by 3.0 percent, the highest pace since mid-2007. Given that housing costs comprise the largest weight to the consumer price index, one should anticipate a faster overall inflation once the effects of low gasoline price go away. That occurs around December, the time when gasoline prices initially plunged last year.
Regarding inflation on other items, water and trash collection costs rose 4.3 percent. Moving and freight costs rose 6.6 percent. Nursing home costs rose 3.3 percent. These all surpassed the broad inflation rate of zero. What prices are falling aside from gasoline? Internet service costs and airfares declined modestly.
It is worth noting of price changes over a long time. From 1982 (when all items were set to equal 100 and hence making for easy comparisons) the price changes have been the following:
gasoline prices grew by 135 percent
food price by 147 percent
rents by 186 percent
airfare by 192 percent
home price (not part of CPI, but as an asset price) by 223 percent
medical service by 375 percent
college tuition by 688 percent
mortgage payment (with 30-year fixed rate on a home purchased in 1982) by 0 percent
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.