For over a year, economists and financial market experts have been confidently arguing that shelter costs are on the cusp of rolling over. So it was a surprise to many when shelter costs accelerated in January.
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Stephen Stanley, chief economist of Santander Capital Markets, has contended that shelter costs will slow but not as much as expected.
In an interview after the January consumer price index was released, Stanley noted the cost of new and used homes have begun to rise again. And a chronic shortage of properties for sale means there’s more demand for rental units.
That could keep rents from falling much further.
At the same time, Stanley said the Federal Reserve’s decision on when to cut interest rates is unlikely to hinge on the real-estate market.
“I don’t think [the Fed] is focused on housing exclusively by any means,” said Stanley. “They view services inflation as the most problematic part. These service firms are labor intensive. That is their biggest cost.”
Inflation in both housing and the services side of the economy worsened in January, contributing to sharp increase in the consumer price index.
The cost of shelter — rent, homes, hotels — rose a steep 0.6% last month. The 12-month increase in shelter costs, what’s more, only tempered to 6% from 6.2%.
“Shelter costs also remain stubbornly high,” said Thomas Simons, U.S. economist at Jefferies.
The cost of services excluding shelter and energy — the Fed’s preferred measure of labor costs — rose an even stiffer 0.9% in January. The yearly increase in that so-called supercore rate also moved up to 4.4% from 3.9%.
Economists say the cost of services is the Fed’s biggest worry because labor costs and services prices are generally more “sticky” and rarely decline.
“In recent Fed speak, officials have emphasized the need to see continued downward movement in super core services,” Nationwide chief economist Kathy Bostjancic said in a note to clients.
The real estate industry continues to scratch its head at government data showing housing costs increasing.
“It is a bit of a mystery since apartment rents are no longer rising and single-family rent growth is at low single-digits,” said Lawrence Yun, chief economist at the National Association of Realtors.
For example. private-market measures of rent, point to smaller price increases or even outright declines. Lots of apartments have been built in the past few years amid rising demand, and that’s helped push rents down.
The average median rent nationwide fell by 0.3% in January to $1,373, according to one estimate by Apartment List. And year-over-year rent declined by 1%.
Asking prices for market-rate rents have also fallen for the last eight months, according to Realtor.com, and will “remove some of the pressure on overall inflation,” chief economist Danielle Hale said in a statement.
(Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)
There’s no relief for Americans looking to buy instead of rent, experts said.
Home prices are rising again, exacerbated by a shortage of new and used homes for sale.
The median resale home price is up by nearly 40% over the last four years, noted Lisa Sturtevant, chief economist at Bright MLS.
Few homeowners are interested in selling their homes and giving up a mortgage rate that could be as low as 2%, which is limiting the number of options buyers have.
In 2023, this lock-in effect pushed home sales down to a 29-year-low.
With mortgage rates still in the high 6% range, home buyers can expect little relief when it comes to purchasing a new home.
