Competition from Vacant Properties Puts Pressure on Rents
As measured by the Bureau of Labor Statistics' Consumer Price Index (CPI) series, residential rents continued to increase while the overall price level continued to decline in December. This marks the fifth straight month during which these trends have been evident. The combination is causing a spike in the real rent index, which adjusts changes in rents for overall inflation—or, in this case, deflation. In fact, the overall CPI passed a threshold in December and now shows lower prices on a year-over-year basis.

In normal times, a rising real rent index indicates strength in rental markets, but in the current situation it reflects, for the most part, weakness in the overall economy. The fact that the nominal rent measure continues to rise seems anomalous. The relatively small numbers of new units coming on line recently could be a factor. Nevertheless, competition from vacant properties originally intended for owner occupancy is exerting downward pressure on rents, and this should show up in the CPI numbers eventually. 

Based on seasonally adjusted Consumer Price Indices; U.S. Department of Labor, Bureau of Labor Statistics. The annual rates indicate what the percentage change would be if the current monthly rate were sustained over a 12-month period. The real rent index is the CPI for rent of primary residence divided by the CPI for all items and scaled so that January 1995 is 100. [ return to top ]