I am popping out of book leave to just throw a few charts at you regarding the Inflation data for December. CPI came in a 0.3% versus 0.2% expected month over month. But as always, the devil is in the details.
Bureau of Labor Statistics pointed to shelter as the source of the increase: “The index for shelter continued to rise in December, contributing over half of the monthly all items increase.” The way BLS measures shelter inflation is Owner’s Equivalent Rent, a mix of rent measures and survey-driven weighting that asks people about their housing costs.1
In the real world, shelter measures were flat or negative.
The Apartment List National Rent Report showed that the rental market ended 2023 with a fifth straight month of negative rent growth Nationwide, median rent fell by 0.8% in December — even as the lagged BLS measure showed a rise:
Rents are down 0.8% month-over-month, down 1% year-over-year
The peak in rent increases occurred Summer of 2022, and the trend has been downwards since. Apartment List observes: “Apartments across the country are slightly cheaper today than they were one year ago. This stands in sharp contrast to the prevailing conditions of 2021 and 2022”
Same with Zillow — both the Observed Rent Index for December (top) and the Zillow Home Value Index (below) and Observed Rent Index for November (below) actually fell 0.2% in November and December 2023, contra to CPI data.
Bottom line: As I have been writing since 2005, Owner’s Equivalent Rent is a noisy, survey-driven model that operates on a very long lag. CPI overweights shelter, making it the largest part of CPI. While BLS data shows a modest increase, real-world, real-time measures show the opposite — a decrease in the shelter component of CPI.
OER and the BLS model will get here eventually — I would guess the model will catch up to reality by early Summer…
Previously:
How Everybody Miscalculated Housing Demand (July 29, 2021)
Sources:
Apartment List National Rent Report
Apartment List, January 3, 2024
December 2023 Rental Market Report: 2024 Kicks Off With Mixed Signals in Rental Housing
Nicole Bachaud
Zillow , January 10 2024
Zillow Home Value Index (ZHVI)
Consumer Price Index
BLS, January 11, 2024
__________
1. BLS:
Measuring Price Change in the CPI: Rent and Rental Equivalence
“The data used as inputs in the construction of the index for shelter, as well as the indexes for rent and OER, are collected in two surveys. The Consumer Expenditure (CE) Survey asks households the share of their budget which goes towards different categories of goods and services, and is subsequently used by the CPI program to create weights for index estimation. The Housing Survey collects price observations of rental housing units across the United States.”
