If you're thinking about buying a home in Davis County or Weber County, Utah, mortgage rates are probably one of the biggest questions on your mind.Buyers regularly ask whether they should buy now
Why is Inflation Sticky
Dated: June 24 2024
Views: 193
Housing has an outsized impact on inflation
Inflation is based on changes in the CPI, which is a measure of the prices of various goods and services consumers purchase. Home prices are not included in the CPI, as the purchase of a home is considered an investment rather than an expenditure by the BLS. But rents and a concept referred to as "owner equivalent rents" are included. The owner equivalent measure is an attempt to track how much homeowners could charge if they rented their home out.
Shelter accounts for 30-40% of the CPI. So, how shelter costs are trending will have an outsized effect on the overall inflation measure — more important than food or energy, which can be more volatile on a month-to-month basis.
Timing is everything
The BLS collects data on rents every month, but the majority of that data is from renters who are in the middle of a lease — which means the rent data included in the CPI does not reflect the advertised rents or rents for new tenants, which is a more accurate measure of the housing market.
Because those rent changes are not collected until a lease ends, the rent data in the CPI can reflect prices that are 12 to 18 months old.
For example, a recent national report found that average apartment rents had declined year over year back in August 2023. According to the CPI data, the rent index was still rising by nearly 8% that month.
What does it all mean for interest rates?
The Federal Reserve has been stalwart in its commitment to achieving a 2% inflation rate. While the Fed technically watches a related measure of inflation, the Personal Consumption Expenditure, public attention is closely paid to the CPI measure.
The Fed is well aware of how rent data is collected and how shelter costs lag in the CPI, keeping inflation higher than it truly is in the economy.
It is mostly a communication issue, but the Fed could move on cutting rates before the official inflation measure hits 2%, which could help spur housing supply and help prospective homebuyers.
Source: Dr. Lisa Sturtevant, Real Estate News
Kelly Shuldberg
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