The asking prices of new rental leases are easing, making economists optimistic that inflation in the U.S. could return to its 2% norm in 2024, The Wall Street Journal reports.
Landlords and home owners looking to sell or rent for the top dollars they were getting during the COVID pandemic, are beginning to meet resistence. However, through October, housing houses were up 6.9% from a year earlier.
Now, Americans have run through much of the COVID stimulus money and savings they accumulated due to lower economic activity during the lockdowns.
Inflation has taken a big dent on Americans’ purchasing power and income, leaving renters and potential buyers simply unable to pay as much as before. All of this is leading to rents and home asking prices beginning to decline.
However, because the typical lease contract is a year and home purchases take months to close, Americans won’t begin seeing noticeable reductions in housing costs for a year.
‘An Oil Tanker Turning’
As James Knightly, chief international economist at ING, puts it, because the Bureau of Labor Statistics and economists “are looking at the overall pool of rents, and not just new rents, it’s like an oil tanker turning—it just takes time for market dynamics to feed through.”
Measuring housing inflation is critical, as combining its impact on both rent and homeowners’ costs brings its impact on the consumer price index (CPI) to over 31%.
That is why forward-looking economists are hopeful that the Federal Reserve is showing some success at taming inflation.
Alan Detmeister, a UBS economist, shares his excitement thus: “Last year, we saw huge increases in market rent measures in June, July and August. But now they’re coming in at or below their prepandemic pace. That suggests we should now be past the peak for monthly CPI rent increases.”
Fed Chair Jerome Powell expressed almost the exact same sentiment in a Nov. 30 speech: “As long as new lease inflation keeps falling, we would expect housing services inflation to begin falling sometime next year. Indeed, a decline in this inflation underlies most forecasts of declining inflation.”
Not Out of the Woods
That doesn’t guarantee, however, that housing costs are about to come down, other experts warn. There is still a danger of a wage-price spiral. In point of fact, annual wage growth rose 5.1% in November from 4.9% in October, according to the Labor Department. That could force the Fed to continue to raise interest rates into next year, which in and of itself would feed into higher housing costs.
Higher wages could be a wild card in the months ahead, warns Steven Blitz, chief U.S. economist at TS Lombard. “The idea that shelter is the driver of inflation is a little overstated,” he says.
© 2023 Newsmax Finance. All rights reserved.