Home Real Estate Here’s why it may take a while for housing inflation to cool off

Here’s why it may take a while for housing inflation to cool off

by Ozva Admin

An ‘Open House’ banner is displayed outside of a single-family home on September 22, 2022 in Los Angeles, California.

Allison Dinner | fake images

There are signs that inflation may fall further in the coming months, but housing threatens to mute any improvement.

The consumer price index, a key barometer of inflation, rose 7.7% in October from a year ago. While still quite high by historical standards, that annual reading was the smallest since January.

The monthly increase was also lower than expected, giving hope that stubbornly high inflation and the negative impact it has had on consumers’ wallets, may be relieving.

However, the cost of housing rose 0.8% in October, the biggest monthly gain in 32 years. That may seem counterintuitive at a time when many observers have said that the United States is in a “housing recession.”

But housing inflation, at least as reflected in the CPI, is likely to remain elevated for several months to a year given its importance to household budgets and the intrinsic dynamics of the rental and housing markets, economists said. .

“As the housing market cools, this category will decline as well, but we may have to wait until next year before headline inflation eases significantly,” said Jeffrey Roach, chief economist at LPL Financial.

Housing is the largest part of household spending

The U.S. Bureau of Labor Statistics, which issues the CPI report, divides the “shelter” category into four components: rent, lodging outside the home (for example, hotels), renters and home insurance, and rent. equivalent of residences for the owners.

Rent and “owners’ equivalent rent” are by far the most significant.

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The latter tries to put homeowners on par with renters. It essentially reflects what homeowners would pay to rent their home, said Cristian deRitis, deputy chief economist at Moody’s Analytics.

Housing is the largest part of spending by the average consumer. The general weighting of the CPI reflects that: Housing represents 33%, the largest share of any category. So housing has a huge impact on headline inflation from one month to the next.

The hostel category grew by 6.9% in the last year.

The rental and housing markets are cooling off

Busa Photography | Moment | fake images

Declining demand has caused home and rental prices to cool or moderate in many areas of the US.

US new home listings for the month through November 6 were down 17.5% compared to the same period a year earlier. according to to Redfin, a real estate brokerage. The typical sale price, $359,000, is down more than 8% from its peak of $392,000 in June, according to Redfin.

mortgage lawsuit has fallen as rates rose steadily to a recent spike above 7%though the rates refused strongly last week.

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Meanwhile, rental inflation has slowed in 2022 from its breakneck pace last year, Zillow data suggests.

Americans paid median market rent of $2,040 as of Oct. 31, according to the Zillow Observed Rent Indexwhich is seasonally adjusted.

That rental price rose 0.31% from the previous month, on September 30. But the pace of that growth has slowed for four straight months. By comparison, rents increased about 1% in the month from the end of May to the end of June. Rental inflation touched 2% per month in July and August 2021, according to Zillow data.

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