: ‘Peak inflation is not here yet’: Rents continue to rise, putting pressure on would-be homebuyers. That’s bad news for the Fed.

by | Jul 7, 2022 | Stock Market

Rents will continue to rise, contributing to inflation, until the end of the year, economists say. With home prices and mortgage rates this high, many prospective homeowners are choosing to rent longer, opting to wait it out until prices normalize. But rents are also increasing, helped along by a housing-supply shortage that’s hiking the cost of living for millions of Americans. The national median monthly asking rent even surpassed $2,000 for the first time in May, according to Redfin, 

That’s all feeding into inflation, the very enemy the Federal Reserve is trying to address. Shelter, including rental costs and owners’ equivalent rent, or what a homeowner could rent their property for, makes up about a third of the Consumer Price Index, a key inflation gauge.  Over the first half of this year, rents have increased by 5.4% nationwide, according to a report by Apartment List. While that’s actually a slower rise than the jump in rents over the same period last year, big cities are still seeing some absurd swings in rental prices: rents in New York City, for example, are up 27% over the past year, Apartment List said. The San Jose metropolitan area, meanwhile, has seen the fastest rent growth over the last six months, while prices in Boston, Seattle — and even smaller markets like Hartford, Conn., and Providence, R.I., — are also increasing.  “Rents are surging given that housing supply is still tight; plus, prices are also going through the roof,” Jennifer Lee, senior economist at BMO Capital Markets, told MarketWatch.

“‘Given that housing, or owners’ equivalent rent, is over 20% of the CPI index, yes, that is concerning as it will add to already high inflation pressures.’”

— Jennifer Lee, senior economist at BMO Capital Markets

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