After the brief pandemic slump, rising rents are burdening households and fueling overall inflation.
Jump in Rents Spurred by Buying Frenzy
Due to the supply shortage of for-sale homes and skyrocketing home prices, many would-be buyers are being forced to put their homeownership dreams on hold and continue renting.
The result? Increasing demand for apartment and home leases that translate into increasing rents. Likewise, rents and demand for more space and home offices in apartments are also spurring rent prices.
Adam Ozimek, chief economist with Upwork, “People might be looking to move out and on their own after being stuck with roommates during the pandemic. There’s also a possibility that remote work is playing a role here.”
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Perfect Storm Pushing Up Consumer Price Index
The combination of all the above factors plus the fact that personal savings as a share of disposable income is up to 9.4%, compared with about 8% just prior to the pandemic, has created a perfect storm for the rising Consumer Price Index (CPI). The CPI pushed the measure of rent up +0.5% between August and September, the fastest CPI increase pace in about 20 years.
According to ApartmentList’s September monthly rental report, the national median rent increased +16.4% since January even with a slight slowdown in rent from the July peak. Igor Popov, chief economist with ApartmentList, said, “This is very strong by historical standards…It’s a racecar slowing down ahead of a turn, but it’s still going faster than we ever have in our lives.”
In just a year, overall consumer prices increased +5.4% in September. Though rent increases aren’t as crucial as for-sale home prices, rent increases matter to consumers’ expectations about overall price increases and inflation…and those inflation expectations matter to the Federal Reserve.
Rent Levels Up Nationwide
Higher vibrations of higher rent costs resonate in all parts of renters’ lives. While smaller cities have been experiencing hot rental markets for a while now, big city rents experienced an increase in median rents for the first time since the start of the pandemic, according to data from Miller Samuel and Douglas Elliman.
Likely, continuing rent increases now depend on whether or not the economy goes into full employment, according to Upwork’s Ozimek.
One renter in Greenville TX is considering buying a trailer and setting up his family in an RV lot. Why? The three-bedroom house he’s been renting for some $1,000/month since 2016 is being taken over by another family willing and able to pay more. This renter said, “It’s insane the amount of rent, even in this little poduck town.”
If able to pay $1,500/month for another rental, he and his family could afford that rent cost increase by forgoing a new car to replace a car that was stolen and totaled.
Thanks to The New York Times.