Last year, the housing crisis started when a record number of Americans began looking for their own houses. The mad dash happened due to the need to escape from the pandemic and take advantage of low-interest rates.
Soon, prices started rising, even as building materials rose as well. More than a year later, the housing crisis seems to ease up on homes for sale. Now, the crisis looks to shift towards the rental market instead.
In an opinion piece published in Bloomberg, Conor Sen said the housing crisis is now focusing on rental homes in metro areas. Before, rising vacancy rates during the pandemic led to stagnant or falling rents in many metro areas. However, he said that signs of reversing are now showing up, and this can create problems for the Feds and for renters in the next few months.
Three Factors That Will Drive Rent Higher
Sen pointed to three factors likely to push rent prices up. The first is when the economy and the citizens start going back to their normal ways. Data from Apartment List showed that rent prices continue to rise strongly since March in urban areas hit by the pandemic. the metros that were hardest hit by the pandemic.
The second is how the recent wave of home-buying altered the rent-versus-own calculation. As demand outpaces supply, home prices kept rising. Now, home prices are on average 15% higher compared to last year. WIth rents charging a modest 5% increase, many dwellers will find renting more acceptable to their budget.
Finally the third is the speed of wage raises in retail or service work. Many companies began offering a $15/hour minimum rate to convince workers to sign up. Many landlords will see this as a sign to raise rentals. Because many sign up for one-year contacts, project increases will show up on the next contract and in succeeding ones.
Implications For The Federal Reserve
Increased rent prices will also affect the Federal Reserve. In its last meeting, the Fed said that inflation has implications for the Federal Reserve, too. In its June meeting, the Fed acknowledged that inflation is rising faster than expected.
One of the few things keeping inflation in check is lower rental rates. Once this begins to rise, inflation rates might go faster and higher.
Once this happens, the myth of transitory inflation will burst. Even as many other high-priced items such as building materials and automobiles begin to stabilize, continually rising rent prices may lead to new inflation rates that definitely won’t be short-term. This leaves the Fed with no choice but to adjust its targets before 2023.
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