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The rise in consumer prices may be slowing down, but don’t expect rents to ever return to a pre-pandemic “normal,” experts say.
Shelter prices were the biggest driver of higher consumer prices on a monthly basis in June, the Department of Labor said Wednesday, though the consumer price index still rose a modest 0.2% from the month prior, and 3% from a year ago — the lowest annual increase since March 2021.
Indeed, the index for rent was 0.5% higher from a month earlier, the same monthly increase seen in May — offering yet another sign that rental-price inflation has already peaked. In other categories, prices declined on a monthly basis or barely increased, providing consumers a bit of welcome relief after last summer’s wave of high inflation.
But, even if consumers may be able to snag cheaper eggs and gas compared to a year ago, rent prices are unlikely to retreat to where they were in 2019, before rents spiked. In fact, rents were up 8.3% from June 2022 — a period when prices were breaking records in places like Manhattan — according to Labor Department data.
Russ Koesterich, a portfolio manager for BlackRock’s Global Allocation Fund, said in an email to MarketWatch that while housing inflation is likely to continue slowing down, prices are “unlikely to revert back to pre-2019 levels.”
“‘Supply has not kept up with household formation. This is likely to keep housing costs, including rents, from reverting back to pre-pandemic levels.’”
“Supply has not kept up with household formation,” Koesterich said. “This is likely to keep housing costs, including rents, from reverting back to pre-pandemic levels. In addition, still strong nominal wage growth and strong consumer balance sheets suggest more resilient demand, even in the face of rising costs and rents.”
Zillow
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said in its May rent report that the typical asking rent price was $2,048 per month. Although that was up just $13 from a month earlier, it was a 4.8% increase from a year ago, and a roughly 27% increase from the typical U.S. rent of $1,607 in March 2020.
“Rent prices will almost definitely not return to where they were before the pandemic,” Jeff Tucker, a senior economist at Zillow, said in an email to MarketWatch. “Pressure is easing in the rental market, but there’s no sign rents will fall any more than they tend to do in a normal winter, which is a slower time of year. Rents tend to be sticky against downward movement, as landlords would rather offer concessions like a free month or free parking to fill a vacant unit than drop the price.”
To reach better rental affordability, which is strained nationwide, it may be more realistic if rent grows at a pace that’s slower and more sustainable, allowing incomes to catch up, Tucker said.
“That is more or less what we’ve seen so far this year,” Tucker continued. “And more help is on the way as a record-high number of multifamily units are under construction now. The rental vacancy rate is already rising, which gives more negotiating power to renters, and as those new apartments come to market over the next year or two they should suppress rent growth for existing units.”
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