Ninety percent of the monthly price increase recorded in the July consumer price index – 90% – is attributable to housing, that is, the cost of a roof over one’s head. Housing costs rose 0.4% in July compared with June, the same as in May. But these figures do not tell the whole story.
If we didn’t have to worry about housing, core inflation would be completely under control by now, according to Lisa Sturtevant, chief economist at real estate listing service Bright MLS.
“If you took housing out of the CPI measure, we would have been below 2% for the last six months,” Sturtevant said.
But of course we have to worry about housing, because we have to live somewhere. And living somewhere is 5.1% more expensive in July than last July, according to the CPI.
However, “that doesn’t reflect what tenants are seeing on the ground right now,” Sturtevant said.
If you look at updated market data for new leases, from sources like Apartment List, Sturtevant said, rents are down 1% or flat year over year.
“In any case, rents are not going up 5% year over year,” Sturtevant said. “The CPI rent index is going to lag these private market measures by about a year.”
So it’s not that the CPI is wrong, it’s that it’s moving slowly.
Private real estate companies report real-time rents for new tenants and new leases, but the government figures include people renewing their leases.
“And renewals are not moving to the same extent as new tenants, up or down,” said Omair Sharif, president of research firm Inflation Insights.
And the government waits six months before coming back to the same people. So yes, it is slow.
“You can compare it to an oil tanker that is slowly turning,” Sharif said.
Looking ahead, what does the latest market data hold for us?
“We expect rents in the market we track to increase by about 1.4 to 1.5 percentage points,” said Lu Chen, director of housing research at Moody’s CRE.
That’s significantly lower, Chen added, than the long-term average of just under 4%, and certainly not the 5% CPI. So we can relax.
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