Rents Drop Once Again
In August, NAHB's real rent index dropped five tenths of a point to 111.6, giving back most of the ground it had gained since November of last year. While the overall CPI increased at an annual rate of 5.5 % in August, the CPI's residential rent component actually declined for the second month in a row. Although the recent experience with homeownership rates below 68% would seem to favor rental markets, other trends explain why rental markets are showing signs of weakness. One such trend is the rising rate of unemployment, which has a tendency to depress the rate of household formations.
The year-over-year change in households is a volatile series, but has been under a million since late last year. (Given the current size of the U.S. population, 1.4 million would be normal.) On the supply side, owners have had difficulty selling their homes at the desired prices, forcing property that would normally be part of the owner-occupied housing stock into the rental market.
Based on seasonally adjusted Consumer Price Indices; U.S. Department of Labor, Bureau of Labor Statistics. The annual rates indicate what the %age 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.
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