High Housing Prices Coined as ‘Sticky Inflation’

There were generally positive results from last month’s  Consumer Price Index (CPI) report. Still, CNN’s Chief Business Correspondent Christine Romans coined rising shelter prices as “sticky inflation” on CNN News Central, and rightly so because inflated shelter prices—home values and rents—are unlikely to change anytime soon.


In its release, the Bureau of Labor Statistics (BLS) said, “the index for shelter was by far the largest contributor to the monthly all items increase,” accounting for 60% of the total CPI increases less energy and food. Gas prices fell year-over-year by 17.4%, food prices were still up 8.5% from last year, and shelter was up 8.2% from March 2022. However, some food prices, such as eggs, have fallen—even with bird flu.


It’s not a surprise that shelter is the thorn in the CPI’s side, particularly as it represents nearly 40% of CPI. Unlike the 2008 housing bubble, consisting of no-income, no job, no-asset (NINJA) loans that caused home prices to soar and later crash, today’s rapid increase in home prices during the pandemic has a more solid foundation. Institutional and private investors, along with all-cash buyers and limited housing inventory, are not only keeping home prices at bay, but they’re still increasing.


Last month, NAR Chief Economist Lawrence Yun said that inventory levels are still at historic lows and multiple offers are returning on a “good number of properties.” According to Black Knight, multiple offers can only push prices higher, as they did in February.


In fact, from the second quarter of 2020 to the third quarter of 2022, U.S. median home prices have increased from $288,300 to $391,500, a $103,200 increase in home prices in two years with a forecast to decline to $380,000 by the end of 2023. Even historically low mortgage rates during the pandemic kept many first-time homebuyers from bidding competitively against investors and all-cash buyers. The competitive offers just pushed home values higher at a rapid pace making homes unaffordable–even at the record low rates. In contrast, the mid-2000s pushed home prices to record highs when weak underwriting and NINJA mortgages inflated the housing bubble before it burst in 2008.


If first-time homebuyers get pushed out of competitive bidding for housing contracts and single-family rentals (SFRs) are also occupied, then apartment rents will be just as competitive on a limited inventory.


SFRs and build-to-rent have become alternatives for potential homebuyers. Rather than buying a home, it could mean the SFR market will thrive, and as SFR prices push higher, they push apartment rents higher if demand outlasts supply. In either case, the law of supply and demand currently keeps shelter prices high, and despite mixed perspectives on apartment rental prices, costs continue to grow in 2023.


Rent.com reported that by February 2023, rents grew by 18.47 percent, a $302 price increase, and since the beginning of the pandemic in early 2021, rents have grown 19.45 percent, an annual growth rate of nearly 6.50 percent. However, in a glass-half-full scenario, Rent.com also reported monthly rent growth for the fifth time in six months in February by 1.7%, the lowest yearly growth number in 20 months. Indeed, rents have dropped 0.25% in the past year.


Realtor.com reported rental growth slowing, but rental affordability worsened in February. Meantime, the February 2023 Fannie Mae National Housing Inventory report said 89% of renters expected rental prices to stay the same or increase this year.


The bottom line is that unless housing inventory increases, competition from SFR investors and all-cash buyers begins to decline, and first-time homebuyers have an opportunity to compete for home purchases, “sticky inflation” for shelter, in general, will stay with us for the long term and eventually become inflationary glue.


Michael Murray

Michael Murray is Director of Communications at Strategic Vantage, a PR and marketing firm based in Miami, Fla., serving the mortgage banking industry. As a Board Member for NAMI Montgomery County, Md., Michael helped create a scholarship for HBCU students focusing on mental health studies. In addition to blogging, Michael edits and writes plays–some performed on radio, television, and theater. He graduated with an English degree from the College of William and Mary.

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