“No Quick Relief in Rent Increases,” Economist Says of Rising Prices.

Rising rents across the country are a contributing factor in the recurring nightmare that is inflation. Unfortunately, there is little chance that things will improve for tenants this year.

Alan Detmeister, a senior economist at UBS, has stated, “No quick relief in rent increases.” “Rent hikes are likely to peak in the first quarter of the next year and then decline gradually, remaining high at least through the end of 2024,” says the expert.

The problem of rental inflation is connected to the overall picture of inflation during the pandemic.

Early in the pandemic, when COVID-19 spread and mortgage rates were at historic lows, there was a spike in American interest in home ownership. Soon after, home prices rose, driving some buyers back into the rental market.
This tendency became more pronounced this year as a result of the Federal Reserve raising interest rates to reduce demand in markets like the for-sale housing market. Higher mortgage costs prevented more prospective purchasers from purchasing homes and drove up rents.

Skylar Olsen, the chief economist at Zillow, was cited as saying, More people will stay in rental markets for longer as the difficulties for home buyers start to rise in this environment of higher interest rates. They’ll need to save up or scale back their expectations in order to access home ownership with a lower debt load in order to avoid the effects of higher rates. Consequently, you extend your lease.

With the median monthly cost of a newly listed one-bedroom apartment rising to $1,450, up 11% from a year ago, Zumper’s National Rent Index set a new record high in July.

The median price of a one-bedroom apartment in New York City was $3,780, according to Zumper, making it the most expensive city in the country for renting. However, demand is also strong in more affordable markets in places like Tennessee and North Carolina because “people continue migrating to these states in search of more space and friendlier cost of living.” The widely followed official inflation indicator, the Consumer Price Index (CPI), reached a new record high in June.

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And while some factors, such as energy, played a significant role in that gain, “rental inflation also has been strong,” JPMorgan economist Daniel Silver recently noted in a note to investors.

Silver continued, Given its propensity for persistence and its significant weight in the CPI’s basket, it is vital to monitor.

The “shelter” component of the CPI, which is determined from rent expenses rather than housing prices, is given significant weight by the Bureau of Labor Statistics. The indicator shows that rent costs increased 5.8 percent over the previous year and 0.8 percent from month to month.
Despite having a 32 percent weight in the basket, Silver highlighted that rental inflation… was lower than headline inflation in June, and it has accounted for only around 20 percent of the entire gain in consumer prices.

Given the delayed pass-through of such spot rental rates to the stock of rented apartments, Zillow’s Observed Rent Index (ZORI), which tracks changes in rent over time, suggests that “a significant portion of shelter inflation is already ‘baked-in’ for the remainder of this year,” according to Silver.

Olsen claimed Moving forward, there will still be a high demand for rentals. Though we are beginning to witness a slowdown in rent from perhaps the high highs, I believe that market pressure will continue to be intense going forward.

For current tenants as opposed to new ones, Detmeister observed that the situation is marginally better.

He claimed that tenants who are still living there are not experiencing the same rate of rent hikes as those who are moving in. And it is especially true for the sector that is not properly managed, which accounts for around half of the rental stock worldwide. Rents as a result haven’t decreased.

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