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These thoughts are from Jay Parsons – Rental Housing Economist and PropTech VP via LinkedIn

Here are nine thoughts on yesterday’s CPI report and the critical role of rents — now and going forward.

1) We continue to see CPI’s rent data lagging behind real-time rents – and not just for new leases. But since new leases are the early indicator, let’s start there: Note from this chart that while market-rate apartment rent and CPI rent trends (YoY) are converging, they are both moving rapidly in OPPOSITE directions. (More on embedded / in-place rent in a moment.)

2) Asking rent growth month-over-month peaked in July 2021 for market-rate apartments, and renewal rent growth peaked one year later in July 2022. Vacancy has been rising since March, so rent growth is cooling significantly. 

3) Month-over-month asking rents for new leases dropped in each of the past 2 months, and renewal rent bumps shrunk as operators focus on retaining residents to protect occupancy / cashflow…

4) Yet the CPI shows October saw embedded rent growth just a hair below the multi-decade high recorded in September.

5) Rent is the single-largest variable in the CPI’s single-largest category (shelter), and it’s cooling significantly, but it appears we won’t see that reality reflected in CPI until 2023 due to lagging data. (Remember that the CPI’s rent survey is used not only to estimate renter costs, but it’s also the primary variable in estimating costs for the even larger homeownership category.)

6) Yes, of course the CPI’s embedded/contract rents lag new lease rents. Fed knows this, too. But the lag appears to be deeper than that, with the real-time data showing renewal increases are set to cool sharply (as “loss to lease” has plunged back to long-term average, leaving less margin for upside) even as the CPI is unlikely to capture that. (More details in a prior post linked below.)

7) Remember that if you wanna move the rent, it starts with the asking rent for new leases. And that’s been happening throughout 2022. CPI is capturing a lagged indicator for rent, which is a big reason why it’s still going up as other CPI categories cooled off in October.

8) Super interesting to see CPI’s “services less rent” is actually DOWN in October. Imagine the impact if the CPI had captured more real-time data for rents, too…

9) The cynics will point out that this same lag played out in 2021 when rents were running up, and that’s true, but it was always a known issue, with studies having already established the lag prior to that. 

#inflation #CPI #housing #rentalhousing

For the complete analysis and other knowledgable insights, visit Jay Parsons here <——-