Rent Increases Up Sharply Year-over-year, Pace Continues to Slow
Higher Rents will impact measures of inflation in 2022
Another monthly update on rents. First, from ApartmentList.com: Apartment List National Rent Report
Welcome to the August 2022 Apartment List National Rent Report. Our national index rose by 1.1 percent over the course of July, a slightly slower rate of growth than we observed last month. So far this year, rents are growing more slowly than they did in 2021, but faster than they did in the years immediately preceding the pandemic. Over the first seven months of 2022, rents have increased by a total of 6.7 percent, compared to an increase of 12.0 percent over the same months of 2021. Year-over-year rent growth currently stands at 12.3 percent, but has been trending down since the start of the year from a peak of 18 percent.
On the supply side, our national vacancy index held steady at 5 percent this month. Our vacancy index has been gradually easing from a low of 4.1 percent last fall, but that easing now appears to be leveling off at a rate that remains well below the pre-pandemic norm. This may be at least partially attributable to spiking mortgage rates, which can contribute to tightness in the rental market by sidelining potential first-time homebuyers from the for-sale market and keeping these households in rental units for longer. Rents increased this month in 87 of the nation’s 100 largest cities. The Miami metro has seen the nation’s fastest rent growth over the past year, but elsewhere in the Sun Belt, the booming Phoenix and Las Vegas markets have shown signs of cooling in recent months.
Rents are still increasing, but not as rapidly as a year ago.
CoreLogic also tracks rents for single family homes: Annual US Single-Family Rent Growth Holds Steady in May but Remains at Record High
CoreLogic … today released its latest Single-Family Rent Index (SFRI), which analyzes single-family rent price changes nationally and across major metropolitan areas.
Annual U.S. single-family rent growth remained at a record high in May 2022, posting a 13.9% increase from May 2021. This growth matched April’s increase, representing the first time that price growth did not accelerate from the previous month since January 2021. Sustained high rent prices are partially due to a robust labor market, with the national unemployment rate at 3.6% in May, down by 2.2 percentage points on an annual basis and the lowest recorded since before the start of the (coronavirus) COVID-19 pandemic. …
“Increases in mortgage rates and high home prices can be headwinds to the for-sale housing market but may be continually pushing up single-family rents,” said Molly Boesel, principal economist at CoreLogic. “While the annual increase in the SFRI for May matched April’s growth rate, the gain remains at a record-high level. Furthermore, the month-over-month growth rate for rents in May was well above that month’s 19-year average.”
The 13.9% YoY increase in May was the same as in April.
I’m going to update some of the data on rents. Here is a graph of several measures of rent since 2000: OER, rent of shelter, rent of primary residence, Zillow Observed Rent Index (ZORI), and ApartmentList.com. (All set to 100 in January 2017)
Note: For a discussion on how OER, and Rent of primary residence are measured, see from the BLS: How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and rent of primary residence (Rent)
OER, rent of shelter, and rent of primary residence have mostly moved together. The Zillow index started in 2014, and the ApartmentList index started in 2017.
Here is a graph of the year-over-year (YoY) change for these measures since January 2015. All of these measures are through June 2022 (Apartment List through July 2022).
Note that new lease measures (Zillow, Apartment List) dipped early in the pandemic, whereas the BLS measures were steady. Then new leases took off, and the BLS measures are picking up.
The Zillow measure is up 14.8% YoY in June, down from 16.0% YoY in May. This is down from a peak of 17.2% YoY in February.
The ApartmentList measure is up 12.4% YoY as of July, down from 14.1% in June. This is down from the peak of 18.0% YoY last December.
Both the Zillow measure (a repeat rent index), and ApartmentList are showing a sharp increase in rents. From Zillow:
“ZORI is a repeat-rent index that is weighted to the rental housing stock to ensure representativeness across the entire market, not just those homes currently listed for-rent.”
And from ApartmentList:
At Apartment List, we estimate the median contract rent across new leases signed in a given market and month. To capture how rents change in a market over time, we estimate the expected price change that a rental unit should experience if it were to be leased today.
Both of these measures reflect new leases, whereas most rental units don’t turnover every year (as captured by the BLS measures). This sharp increase in new lease rates should spill over into the consumer price index over the next year (as discussed in earlier article).
Clearly rents are still increasing, and we should expect this to continue to spill over into measures of inflation in 2022. The Owners’ Equivalent Rent (OER) was up 5.5% YoY in June, from 5.1% YoY in May - and will likely increase further in the coming months.
My suspicion is rent increases will slow over the coming months as the pace of household formation slows, and more supply comes on the market.
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