Economists' Outlook

Housing stats and analysis from NAR's research experts.

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses consumer inflation.

  • Rents continue to climb higher even as broad consumer prices remain tame. Rents rose 3.0 percent over the past 12 months (August 2012 to August 2013), the fastest increase in nearly five years.
  • The broader consumer price index rose much more modestly, by 1.5 percent, thanks to a slight decline in energy prices this year compared to last.
  • Food prices rose 1.4 percent. Clothing prices rose 1.8 percent. Gasoline prices were down 2.4 percent. House related costs of window and floor covering, appliances, and furniture all experienced a slight fall in prices.
  • Home prices are not considered in computing consumer price index. It is considered an asset, and like stock prices, the changes in home prices impact people’s wealth but not cost of living changes. However, a strangely funny component called the “owner’ equivalency rent” is included. It is what the homeowner would pay in rent if the house is rented. This component rose by 2.2 percent, also the highest increase in nearly five years.
  • Apartment owners and small time landlords should be mindful that the cost of running a home, such as water, trash, and sewage costs, increased by 3.5 percent. Many landlords in the high income category will also be subject to a new 3.8 percent tax starting this year (that is, in the next year’s tax return forms) arising from the need to fund health care. Rents may need to rise further to compensate for these rising costs. Moreover, low vacancy rates across most of the country assure continuing pressure for rising rents going into next year.
  • The “Rents are Too Damn High” party is unlikely to win the mayoral race in New York City. Only more new construction can alleviate the rent pressure over time. However, the difficulty of obtaining construction loans, where many lenders are attributing to the onerous and confusing Dodd-Frank financial regulation, is preventing more new supply from reaching the market.
  • Based on this year’s consumer price trend, social security recipients can expect a cost-of-living-adjustment of about 2 percent next year.
  • Core inflation – price changes after excluding the volatile food and energy components – rose 1.8 percent. This measure is what the Federal Reserve monitors to fine tune its monetary policy. As long as it is rising less than 2 percent, an ultra-loose monetary policy can be expected. Should it rise above 2 percent, then inflation will start to become a concern for the Fed. If above 3 percent on core inflation, interest rates on everything will be rising.

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