Our final housing statistics of the month are the FHFA and Case Shiller repeat sales indexes. As usual, keep in mind that mortgage rates lead home sales, which in turn lead prices. Which, in turn, lead the official CPI measure of shelter by a year or more.

This morning the FHFA purchase-only price index through February spiked a sharp 1.2% (!) on a seasonally adjusted monthly basis, causing the YoY gain to accelerate from 6.3% to 7.0% YoY. Meanwhile, the Case Shiller National index rose 0.4% for the month of February, and aLeo accelerated from 6.1% to 6.4% YoY. Since the FHFA index (dark blue) has frequently led the Case-Shiller index (light blue) at turning points by a month or two, I put more weight on that Index.

But first, here’s what the monthly numbers look like for the past five years:

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Next, here is the long term graph of both of them below, compared with the CPI for shelter (red, *2.5 for scale) which shows that despite this month’s acceleration, the YoY gains are actually not out of line compared with gains during the majority of the past 25 years outside of recessions:

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Here’s the close-up view of the last five years, better to show the current trend in both prices and shelter inflation:

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Last month I wrote that “for the next seven months the comparisons will be against an average 0.7% increase per month in 2023. Because house price indexes have shown a demonstrated lead over shelter costs as measured in the CPI, if present trends continue, as these YoY comparisons drop out, the YoY deceleration in OER in the CPI index should continue towards its more typical rate of between 2.5% to 4% YoY in the ten years before the pandemic.”

This remains the case for the Case-Shiller Index, where the favorable YoY comparisons will start next month. The FHFA’s increase was the biggest monthly jump in nearly two years. While the FHFA did not note any special factors in its release, the huge increase looks like an outlier or artifact, possibly due to the very warm February weather that was experienced almost everywhere in the US. So I’ll wait to see what happens next month before I get very concerned.

Another reason I am not fretting is that the Apartment List National Rent Report for May, which was just released, showed another YoY decline in new asking rents, of -0.3%:

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Here’s what the absolute trend (non-seasonally adjusted) looks like:

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Although new asking rents increased 0.5% for the month, Apartment List noted that increases at this time of year are normal, and further that “Month-over-month rent growth is typically picking up steam at this time of year, so it’s notable that growth stalled out this month” compared with a 0.6% increase one month ago. So unless we are seeing a secular move out of apartments and into houses - which seems unlikely with mortgage rates continuing to be high - there is no reason for house prices to remain out of step with rents.

Bottom line: I continue to believe that CPI for shelter will continue to decelerate on a YoY basis, but more slowly than before. Any significant acceleration in CPI will be driven by gas prices and/or other services.

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