The Rapid Increase in Rents Continues

New Leases up Sharply year-over-year in September

Earlier I wrote: The Rapid Increase in Rents, What is happening? Why? And what will happen and Measuring Rents

Today, I’m going to update some of the data that shows rents are accelerating.

First, 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 Sept 2021.

The Zillow measure is up 9.2% YoY in September, up from 8.4% YoY in August. And the ApartmentList measure is up 15.1% as of September, up from 12.5% in August. 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). Adam Ozimek, Chief Economist at @Upwork explained this succinctly:

Adam Ozimek @ModeledBehavior

@lucas_crisco @jmhorp Okay so say the entire economy was one apartment building. BLS asks every renter in the apartment: how much are you paying this month? Then measures the change every month. Zillow looks at the change in the units that are currently up for rent.

September 30th 2021

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But this sharp increase in new leases should spill over into the consumer price index over the next year (as discussed in earlier article).

CoreLogic also tracks rents for single family homes: Single-Family Rent Growth Approaches Double-Digits

U.S. single-family rent growth increased 9.3% in August 2021, the fastest year-over-year increase in over 16 years[1], according to the CoreLogic Single-Family Rent Index (SFRI). The index measures rent changes among single-family rental homes, including condominiums, using a repeat-rent analysis to measure the same rental properties over time. The August 2021 increase was more than four times the August 2020 increase, and while the index growth slowed last summer, rent growth is running well above pre-pandemic levels when compared with 2019.

The 9.3% YoY in August was up from 8.5% YoY in July.

Clearly rents are increasing sharply, and we should expect this to spill over into measures of inflation in 2022. The Owners Equivalent Rent (OER) was up 2.9% YoY in September, from 2.6% in August - and will increase further in the coming months.