You heard it here first, but now the Wall Street Journal confirms it:
August apartment asking rents nationally fell 0.1% from July, according to a report from property data company CoStar Group. It was the first monthly decline in rent since December 2020, the company said.
Other surveys also showed rent declines of various degrees. Apartment-listing website Rent.com showed a 2.8% decrease in rent for one-bedroom apartments during the same month. A third measure, by the listings website Realtor.com, also noted a slight monthly decline in rent this August.
Not only has rent inflation peaked and then declined, it's now negative. We are experiencing rent deflation.
As usual, don't get too worked up about a single month's data. Still, the fact that rent inflation has been close to zero, whether negative or not, is yet another sign that inflation peaked at the beginning of the year and has been declining ever since.
*Deflation*? Well, yes. It's not enough that rents merely stop increasing -- they really need to come back down to earth, particularly on the coasts. A one-bedroom apartment that cost $1500/mo in 2018 costs $2500 now in places. That's insane.
I find it interesting that I can now identify periods of rent deflation just by seeing "for rent" signs in my neighborhood. In a normal rental market (stable or increasing rent) I will never see a sign posted. For a long time I just assumed that landlords had shifted entirely online for advertising, but when times get tough, the signs go back out.
Reminds me a bit of the employers who claim they simply can't find qualified workers, and it turns out of course that they're not willing to raise wages to attract them. Same with all the rental vacancies. Landlords can't figure out why no-one's biting at that $3000/mo studio apartment. Whatever could the solution be to getting people in these properties?
I've seen commercial properties sit empty for a *decade* because the idiot bank or REIT that owns it refuses to lower the rent, regardless of current economic conditions.
"when times get tough" - lol.
I think you're interpreting stable rent prices as being tough times. You've been inculcated with the ever-ballooning rents for the past few decades.
just because rent is declining on a month to month basis doesn't meant you won't see an increase when you renew your year long lease....
"We are now experiencing rent deflation"
Maybe. The data likely has a meaningful flaw. Many of the most expensive rental markets (Seattle, Portland, San Francisco, San Jose, Los Angeles, Miami etc) maintained the eviction moratorium up until recently. Thus, today there is now a large backlog (many more than normal) of evictions.
Typically, the tenants who will eventually be evicted are at a below market rent: the landlord has not been able to raise rents over the last couple of years. The point, there is a above normal number of tenants who are not paying market rental rates.
Thank god.
Let's still go ahead with that recession just to be sure.
While there is nothing wrong with the other posts here, I’d point out that Kevin’s point was that the Fed is wrong and they don’t need to keep raising interest rates to get inflation down because it has already peaked. I just saw a Youtube that talked about how the wholesale price of lumber is way down, but it will take a little longer for retail prices to start falling. The person also said the lumber mills are planning to start cutting back on production to keep prices high. Last week I watched a video on how shipping costs are continuing to fall. And, of course, that the shipping companies are planning to start scraping many of their ships to make sure prices stay high.
So yes, it is hard to tell exactly what inflation is doing, but Kevin keeps pointing out all the different indicators that show that prices have peaked. In response, people keep posting here that the year over year inflation rate is high. Yes, it is. Higher prices are working their way through the system and various prices will not go down right away or maybe even keep rising. The question Kevin is asking is how will higher interest rates magically keep that from happening. My opinion is that they won’t and the Fed doesn’t know what to do so it is raising interest rates. Basically they are panicking and think they should try and convince the world they know what they are doing when they do not.
Part of me is wondering if they are taking the opportunity to raise rates back to “normal” levels and don’t actually think it will lower inflation. But they think rates near zero is bad so they want to raise them while they can.
The Fed will lose political will soon enough. October is 1st quarter of the corporate 2023. I think rates moving higher is more hype. They need to get up to 6-8% to actually "tighten". It's not moving up that wsy.
Gilgit - a couple of points
1) Since Covid, Kevin has had several inflation related posts all centered on his review that inflation is 'transitory' or 'not a problem.' I think, Kevin's analysis has, at least so far, not been well supported: we still have significant inflation (hes I am using annualized figures) and politically, average wages falling is a problem.
2) Inflation is complicated and still, despite significant academic effort, not fully understood. In contrast, there was a broad based concern that the US might have over stimulated the economy given the other realities (constrained supply, consumer concern of Covid, shortages of service workers) https://www.theepochtimes.com/the-economists-self-censored-and-inflation-is-a-result_4748000.html?utm_source=epochHG&utm_campaign=rcp
3) No matter what I say, or Kevin, the Fed is the one tasked with addressing inflation. My point, they use models that are not influences by this website.
...and Kevin's point is that the models are probably wrong. More specifically, they are using the wrong data AND the wrong method of assessing the data, with the result that they are not driving the bus, but they will claim credit for keeping it on the road even though it was staying on the road anyway, and meanwhile their method will inevitably sabotage the economy in the worst possible way--increasing unemployment.
And if you think those FED economists know a lot more than Kevin about their specialized field of study, then I respectfully refer you to Paul Krugman, who has written the same things as Kevin.
It may increase unemployment, it may not. If we were in a structurally weak dollar like the mid-late 2000's, that is one thing. That generally with nominally rising rates is not a good thing. Not only aren't the rate hikes occurring in a structurally strong dollar, but it makes debt financing easier. A critical piece missing in your analysis.
In fairness, Krugman has been more guarded than Kevin and recently
said if he were Powell he probably would have raised rates last week too.
TBH, I'm not even convinced it will raise unemployment at this point.
What it WILL do is lock out prospective young/new homebuyers from being able to build wealth for at least several more years, since we have decided as a country (or really, as a continent, since it functions the same way in Canada and Mexico, for the most part) that the primary way to build wealth is to own a home and use it as an asset piggybank for your retirement.
It's bass ackwards.
Yes , inflation is not fully understood. But importantly, it is not clear that
the government "stimulation" (which probably saved a lot of people from destitution in 2020 and 2021) is a big factor in inflation any more, a point Kevin has made more than once and I have not seen refuted EXCEPT by further references to YOY inflation still being high. If the 2021 ARA is no longer a big factor, supply chain problems receding and worker shortages lessening then the idea that inflation has already crested - bolstered by the past few months of inflation data - then there's a danger that the Fed is now oversteering by continuing to raise rates dramatically and even more so by Powell sounding downright panicky last week. If the month to month data continues to improve I hope Powell and the Fed react accordingly and also tone down the rhetoric.
I’d actually go much further than Ken Rhodes. I doubt the Fed is looking at models. Kevin’s data is not secret. Using public data he has pointed out again and again that the normal inflation causing items simply are not there. That the inflation pressure is gone and things will slowly return to normal. But the Fed is wedded to the idea that every consumer in the country has seen high inflation for a year and if it goes on even a few months longer people will assume it will never end and then empty their bank accounts buying everything insight and Bam! We will be living in Zimbabwe. They could be raising rates by .25% and saying they are going to keep doing it until inflation comes down. Instead they are raising by .75% and causing a recession because they are ignoring the data and trying to convince people that inflation isn’t permanent even though most people have no skin in the future inflation game.
As for ‘transitory’, I strongly think that if Putin hadn’t invaded Ukraine inflation would already be much lower. Additionally, although Krugman has backed off his inflation predictions, he earlier mentioned that from 1947-49 there was inflation that was at times higher than today. After WWII, everyone was cautious, but soon it became apparent the depression wasn’t coming back and started spending again. It took 2 years to convert factories to produce the high demand items and strengthen supply chains. The Fed didn’t raise rates, but the inflation subsided on its own. I suspect this is what is happening now with COVID. Factories had to be restarted and supply chains moved away from zero-Covid China - a process still not complete, but things are slowly being worked out.
I’m amazed anyone thinks that the stimulus from a year and a half ago is affecting inflation today. In any case, the Fed is doing what it is doing not to “address inflation”, but to stop the perpetual inflation fairy from making people think inflation is here to say and cause them to panic buy. They are not doing the “task” they are assigned, but acting as a country wide psychologist.
And if we are short workers, increasing immigration is a much sounder plan than increasing interest rates until we hit a recession.
I agree with this-- I think chances are about 80% that Powell's tone last week was about what Krugman himself once called something like "sounding believably hard-assed" about a prior Fed chair, iow threatening rate hikes convincingly enough to get people to change their expectations and behavior. The key idea was, though, that the Fed then wouldn't need to follow through and come down like a ton of bricks in real life.
In this case his tone was so nearly hysterical, and so suddenly different from how he'd been talking, that he spooked everybody into thinking the sky is falling. It's like he needs calibration lessons or something. Anyway we might know whether this was the idea if the next hike turns out to be like 1/4% instead of another mighty leap.
There's also the idea that they want to move rates high enough to have room to drop them when the next recession comes along, and I think there's a lot to that. But the big trick is to do that without actually causing the recession yourself. 8% for a few months is not 17% for several quarters so maybe Volcker's playbook isn't always right.
… do give Kevin his cheap money back.
Or as debt rolls over things will start to get really interesting…
"Or as debt rolls over things will start to get really interesting" . Is there a prediction in there based on data or is that just a Rick Santelli-esque one off ?
For those who don't remember Santelli - featured regularly with all the other inflation panickers on CNBC - has been screaming bloody murder bout inflation and "cheap" money for well over a decade.
FWIW, I think Kevin is a little over optimistic but its a nice respite from he non-stop inflation hysteria at most of the rest of our media.
Mostly it is my recalling Kevin often saying that (additional) debt doesn’t matter because interest rates are so low. And then the odd chart about how small debt service payments were relative to either GDP or the Federal budget. All seemingly predicated on the assumption that money would remain forever cheap.
Debt don't roll over in a strong currency environment. You get that don't get that. You will learn lessons.
I know you did a separate post about rents, but you should have reiterated the point that this will reflect lower core inflation as rent makes up a large share of "core".
- Team Transitory
Kevin, Kevin, Kevin...
Has nobody ever told you that summer is moving season, and that the summer season is when rents peak? *Of course* rents declined slightly in the September numbers. It happens every year!
Anybody who rents and has to shop around for units because they get hit with enormous year-over-year rent increases from their landlords knows this. Put another way: the actual experiences of the people these posts about "hey everybody, rent isn't as bad as all these whiners make it out to be!" minimize.
Yeah that's right, most of the rental market listings are May-September and if the landlord has a vacant unit and had to keep the listing up they might finally have have offered a discount or incentive to renters on a vacant unit. But what's odd is that didn't happen a year ago when most of the rent inflation was happening against the seasonality last year which made it even more dramatic and then when all of the velocity came over the summer it was at the new higher cost level. The report also calls out that even people looking this month were likely paying a 7% increase compared to their previous lease so a household with (to be simple) $1000 lease 9/1/20-21 then it went up to like $1150 9/1/21-22 and now to $1230 on 9/1/22. So until we get to next summer the renters will likely only be getting cost increases at the 6-7% level of inflation and with the job market still tight at least there's a vague hope that wages will be at or above that, unless the Fed causes a recession that increases unemployment that reduce real take home pay for even more people.