Shelter costs help push inflation to 39-year high

Rent prices climbed at highest rate since 2007

New York /
Dec.December 10, 2021 05:00 PM

(iStock, Illustration by Kevin Cifuentes for The Real Deal)

Americans’ housing costs rose in November at the fastest rate since right before the Great Recession, helping push inflation higher than it has been in a long time.

The shelter component of the Consumer Price Index rose 3.8 percent in November from a year earlier, according to figures released Friday by the Bureau of Labor Statistics. That’s the largest 12-month jump since June 2007.

Overall, the CPI climbed 6.8 percent in November year-over-year, the largest increase in 39 years.

The increase, though, could signal a peak for rising prices.

“I think when we get further into 2022 the year-to-year comparisons are going to get a little bit easier,” said Mark Vitner, senior economist at Wells Fargo. “This year we’ve been comparing prices against a period last year when inflation was really moderated.”

Vintner said he expects the year-over-year increases to cool next year not just because they’ll be compared to 2021 figures, but also because the supply chain issues that led to spiking prices are starting to get straightened out.

The impact of Washington’s massive fiscal stimulus, Vintner added, will have a much longer-lasting effect. He said he expects inflation to average between 3 and 5 percent for the next five years.

As for the impact on housing, Vintner said rising prices could accelerate the migration from higher-cost areas like coastal cities to markets where the cost of living is more affordable, such as the fast-growing Sun Belt cities.

“The rubber will really meet the road in the spring when we tend to see home buying and mortgage activity pick up,” he said.

The Labor bureau calculates the cost of shelter by looking at the equivalent that homeowners would pay in rent, plus actual rents paid for rental properties. It doesn’t factor in the price of homes, which the bureau considers an investment.

The exact impact that rising inflation has on the housing market, though, is up for debate. If people are spending more on groceries and gas, they have less to spend on mortgage payments. But rising prices could also prompt people to shift spending away from things like a expensive vacations to more spending on a home.

According to economists at Zillow, a lot depends on whether wages are keeping in step with non-housing costs. If they are, it tends to cancel out the way rising costs eat into spending on housing.

“That phenomenon might accurately characterize the movement of incomes and prices in 2020 and 2021, helping explain the rising demand for housing and, in turn, rapid home price appreciation over that same period,” Zillow economist Jeff Tucker wrote in a note.

One other way inflation could affect housing is by changing mortgage rates.

Most economists expect rates to rise somewhat next year as the Federal Reserve scales back its asset-purchase program.





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