According to Zillow, rental demand is slowing.
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Housing inflation has been hot in recent months, according to Zillow economists — but it may be coming to a turning point.
The cost of housing—both the cost of buying or renting—had already increased during the pandemic. While data suggests that prices in both categories have moderated in recent months, the industry’s contribution to inflation remains hot.
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The Consumer Price Index’s measure of shelter costs, a category with an indicator of rents, remains a major contributor to the monthly inflation reading. According to historical Bureau of Labor Statistics data, in February, the most recent month for which data for this closely watched gauge is available, shelter costs rose 8.1% over the previous year — the largest since 1982. Growth.
The BLS said in a release that all items gained more than 70% that month. Similarly, rent of a primary residence, a subcategory that specifically measures the cost of leasing a home, was up 8.8% from the previous year, the biggest such gain since 1981.
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This is despite rental private indicators showing a continued slowdown in the cost of leasing an apartment, which started in the first half of 2022. Zillow’s typical rent measurement reported a year-over-year gain of about 6.3% in February — significantly less than their roughly 17% year-over-year increase a year ago. The divergence is due to the way the inflation index measures rental costs: The CPI measures price changes across all leases, while private data, such as Zillow’s Observed Rent Index, or ZORI, only measures rent demand on new leases. Is.
Zillow data released last week showed that the year-over-year decline in rental demand continued in March: The company’s measure of U.S. rents rose nearly 6% year-over-year, almost the same as in February. This was slower than the 6.3% growth. It was the slowest such gain since May 2021, according to March data provided by Zillow.
That inflation figures lag behind rent-seeking is not a new concept. According to the minutes of the meeting, at the Federal Reserve’s first meeting of the year, “participants decided that housing services inflation would begin to fall later this year, reflecting continued small increases, or a possible decline, in rents on new leases.” Is.”
An economist at Zillow says this turning point may be coming. Zillow senior economist Jeff Tucker wrote in a note, “Prior research suggests a 12-month lag between annual ZORI growth and annual CPI rent growth, with expectations that year-over-year growth will subside sometime later.” Might.” April 5 report,
Whether the March CPI reflects a decline in rental costs remains to be seen. The data is due to be released on April 12. According to Zillow’s Tucker, investors may have to wait longer to see rent inflation slow: “June looks like the most likely candidate for when year-over-year CPI rent growth could moderate, Since monthly growth in that measure peaked last June, that baseline comparison should be easy to slide down this summer.
Tucker said that tenants should expect “a pretty normal year” this year. Baron’s– “Seems like a huge turnaround after three very unusual years in the rental market.” Tucker said he expects the typical rental market to be seasonal, which sees rents rise most in the spring and early summer and cool off in the fall and winter. The “excess supply in the market from completed multifamily homes” is a good reason why the rent increase pendulum is not expected to swing back toward runaway rent increases, Tucker said.
The housing market intersects with CPI data in more than just one way: The monthly data release has been a driver of mortgage rate changes in the past as investors use the data to gauge the likelihood of future Federal Reserve monetary tightening.
The average 30-year fixed-rate mortgage as measured by Freddie Mac has fallen in recent weeks as bank sector uncertainty helped lower the 10-year Treasury yield, with which mortgage rates often move. From the first reading in March to the first reading in April, the average rate fell by about 0.4 percentage points to a recent 6.28%.
reports after Friday’s jobs that 10-year Treasury yield sent higherThe upcoming CPI release is the next test for mortgage rates. The Mortgage Bankers Association “expects the Federal Reserve has peaked for this rate cycle,” the trade group’s chief economist Mike Friantoni said in a Friday release — but added that upcoming inflation data will be important. “If inflation also shows no signs of slowing, the Fed may proceed with one final rate hike,” Friantoni wrote.
Write to Shaina Mishkin at [email protected]
