National rent price data from ApartmentList.Com, CPI data from the BLS, chart by Mish

OER stands for Owners' Equivalent Rent, the price one would pay to rent one's own house, unfurnished, without utilities. 

The national rent price data is from Apartment.List.

In his March testimony to Congress, Powell stated "And while housing services inflation remains too high, the flattening out in rents evident in recently signed leases points to a deceleration in this component of inflation over the year ahead."

National Rent Price vs CPI Month-Over-Month

National rent price data from ApartmentList.Com, CPI data from the BLS, chart by Mish

The first graph makes it appear Powell was right, but the second graph tells a much better story. 

A decline in rent that most expected, never happened. I have been on the right side of this call since last October.

Mish Flashbacks

• Oct 31, 2022: Rent Prices Have Declined Two Straight Months, But What Does It Mean? Rent prices are declining month-over-month but don't read too much about inflation into the decline.
• December 8, 2022: Ignore the Pundits, Don't Expect Big Declines in the Price of Rent. The price of rent appears to be falling rapidly. But some of that is seasonal, the rest is likely a mirage.
• January 5, 2023: National Rent Prices Decline Again, But Reports Are Very Misleading. Apartment List reports the fourth consecutive drop in apartment rent prices but that may not translate to your next lease.
• February 2, 2023: National Rent Prices for New Leases Drop for the 5th Month. The price on new apartment leasers declines again, but when do existing renters get a break?

After allegedly declining for five consecutive months, the National Apartment Rent price has now risen for in each of the last four months.

Apartment List Stated Methodology

• "We calculate growth rates using a same-unit analysis similar to Case-Shiller’s approach, comparing only units for which we observe transactions in multiple time periods to provide an accurate picture of rent growth that controls for compositional changes in the available inventory."
• "We capture repeat transactions - when a single apartment gets rented more than once over time - and check whether the transacted rent price has changed between those transactions."
• "Rent estimates reflect prices paid by renters, not list prices for units that remain vacant."

Three Key Difference to BLS

1. Although Apartment List uses repeat rents of the same or similar unit and prices are are actual prices, not asking prices, it only shows new leases, not repeat leases.
2. Because new leases on vacant units rise much more rapidly than existing leases, its year-over-year numbers rise or fall faster and in greater magnitude.
3. The National Rent price reflects year-over-year changes, but in reality, people pay the same amount of rent for 12 months then there is one big price jump.

Seasonal Tendencies

The strong seasonal tendencies of Apartment List are smoothed over by the BLS every year.

To explain the magnitude change in 2022 including a record 1 percent decline in November, just look at the massive spikes that preceded it.

Remember, ApartmentList reflects new leases not renewals of existing leases. With Covid, there was a huge increase in work-at-home and huge demand from people escaping the cities to the suburbs.

Finally, note the time lag between ApartmentList and the CPI.

Reality Check

The above charts provide a needed reality check to those who think rent prices are about to plunge based off Apartment List data.

Note that each box in my lead chart is two months. It takes a full year for national spikes to filter through because of BLS smoothing.

In October of 2022 I commented "The above chart provides a needed reality check to those who think rent prices are about to plunge based off Apartment List data."

And here we are, with national rent prices heading back up for four straight months.

Powell's Rent Deceleration 

CPI data from the BLS, chart by Mish

Consumers Prices Jump Another 0.4 Percent in April, Led by Shelter

On May 10, I noted Consumers Prices Jump Another 0.4 Percent in April, Led by Shelter

• The shelter index increased 8.1 percent over the last year, accounting for over 60 percent of the total increase in all items less food and energy.
• In March, I noted that shelter rose at least 0.5 percent for 14 consecutive months dating to January 2022. 
• In April, shelter broke the string with a 0.4 percent rise, still a very hefty number for a Fed struggling to tame the CPI.
• Rent of Primary Residence is still rising by at least 0.5 percent for 13 consecutive months.

This may be deceleration, but it sure is slow. 

Record Number of Homes Under Construction

Housing units under construction, data from commerce department, chart by Mish

One of the ongoing memes is that rents will fall when units are completed. But that hasn't happened despite a near-record units under construction, 1.4 million or higher since August of 2021. 

But multi-family units are now approaching a record even as single-family units are falling. Eventually, this supply will stabilize things, but the Fed needs more that stabilization with rent of primary residence still rising at a monthly clip of 0.5 percent per month. 

OK, When?

Agree with @JosephPolitano sentiment. One thing to note is that the original Q3’22 NTRR had rent slowing from 12% to 6%. The revised version has more like 12% to 10% in Q3 (eyeballing chart). Suggests a bit longer into 2023 to see bigger rent slowdown in CPI. H/t @BrettMatsumoto https://t.co/7GH5BfdGiq

— Omair Sharif (@fcastofthemonth) June 9, 2023

The idea that the price of new leases leads the way has certainly not lived up to its deceleration billing.

And surprise, surprise, we have revisions that "suggests a bit longer into 2023 to see bigger rent slowdown in CPI."

The Starter Home Is No More, Even in Second Tier Markets

In 100 of 100 markets, the average renter cannot afford a lower tier house. 

Powell is waiting, and so are renters, because homes are miserably unaffordable with the average mortgage rate of 6.9 percent according to Mortgage News Daily.

For discussion, please see The Starter Home Is No More, Even in Second Tier Markets

Until the price of homes crash, or prices steady and mortgage rates crash, those looking to buy an affordable starter home will be out of luck. 

This has widespread implications for household formation and the economy.

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