Bill McBride warns that the next shoe to drop in our story of increasing prices is rents:
Clearly rents are increasing sharply, and we should expect this to spill over into measures of inflation in 2022. The Owners Equivalent Rent (OER) was up 2.9% YoY in September, from 2.6% in August – and will increase further in the coming months.
I think that the eviction moratorium has a lot more to do with that than Bill seems to. As it works out there is a bit of evidence in support of that suspicion as this piece at CNBC reported:
About 18% renters in America, or around 10 million people, were behind in their rent payments as of the beginning of the month.
It is far more than the approximately 7 million homeowners who lost their properties to foreclosure during the subprime mortgage crisis and the ensuing Great Recession. And that happened over a five-year period.
As I said at the time they should have put a property tax jubilee in place is they were going to impose a moratorium on evictions. The sharp increase in rents can be explained largely by landlords trying to recoup lost revenue.
A large part of rent increases are a side effect of real estate going vertical.
The Case-Shiller index is up 20% yoy. During the peak of the housing bubble it was at 15% yoy.
When people are being priced out of a buying a house (as is happening now); they must rent — driving up demand and rent prices.
Just chatted with a neighbor who’s doing a major home improvement. Some of the stuff he needs has a lead time of more than a year at this point.
Real estate and rents are crazy here on the front range. We feel lucky to have moved here in 2018, we could not afford it today. We bought our house for $400k and Zillow now says we could sell for $650k. And given what other houses in our area are selling for, I think Zillow is pretty accurate.
Way back when, we were in Florida trying to sell a house when the housing bubble burst in the oughts. We spent a year on the backside of the downward wave, trying to sell an empty house we were still making payments on while living in Texas. Eventually, we gave up and rented the house for less than the mortgage payment. A year later we managed to sell it, but had to bring $30k of our own money to closing. We could have done a short sale, but were worried about our security clearances.
All in all, it was a very expensive lesson.
Fortunately, we don’t plan to move from here until all our kids are done with school, so at least six years. And we can stay longer if we need to. That gives us some security along with knowing that our jobs are currently 100% remote.
I can only speak with first hand experience about 3 markets: Bluffton/Hilton Head SC, Naples, FL and lake home areas like Lake James east of Asheville, NC.
I think CO’s observation is largely correct. First, CO observes that people who have been priced out of purchases and must rent. In addition, the surges in people who have left the NY, NJ or IL’s of the world and are buying or building must find places to stay for interim periods, causing local rental shortages and rent rate increases. Everyone talks about it incessantly.
Your experience in FL is unfortunate, Andy. After the post housing crash it took years for the market to clear. In addition, it caused entire communities to change their business model. We were lucky enough to get out whole. Interestingly, since that time our former home has traded again at a 50% premium to the price at which we sold.
The current situation reflects more costs of the public policy choices and dislocations due to a virus. Costs few want to acknowledge. The spending binge is just adding gasoline to the fire. Imagine now if the Fed ever does taper.