CPI from the BLS says that rents are up 5% over the last 12 months, but that’s not even close to reflecting the rents shown elsewhere. We all know this though, ask anyone about their rent and you’ll get some anecdotes saying 2-5%, but you’ll get a lot more saying 15-30%.
The chart below shows how the Zillow rent index and the CPI rent index starting in January 2018.
Now you’ll hear a lot of economists and “transitorians” saying this divergence is just due to delays in asking rents (zillow) becoming the realized rents (CPI) that people actually pay. This is because rents get locked in for a year at a time so it takes time for leasing cycles to go through.
I agree, so I’ve also produced a chart showing a lagged Zillow measure (the 12 month trailing average) vs CPI rents. I’ve also included OER (owner’s equivalent rent) for comparison.
As you can see, the 12 month trailing average tracked CPI very closely until 2021. Since spring 2021 the real world rents have been surging while CPI isn’t reflecting it.
Why would they do this though? Debt.
The federal government adjusts social security payments for CPI inflation, they adjust federal pension payments for inflation, they adjust your income tax brackets for inflation, and they adjust a ton of other programs for inflation too.
They know the deficit will blow out if they tell people how bad inflation really is. Rents+OER comprise 1/3 of CPI, so showing 15% instead of 5% would add quite a bit to the headline number.
That’s not very politically pleasing to tell people exactly how badly their being fucked, but it’s reality.
Look at the gap between the lagged zillow number and CPI. It’s blowing out in a historic way.
The only play here is residential rental real estate. It’s not exciting but it’s at least helping investors keep up with the real world inflation people are actually facing.
Just thought I’d add some more context for all the people in this sub working at Wendy’s who are facing eviction due to rising rents.
Though for most of you your parents may let you stay in the basement a bit longer without a rent increase, so that’s good at least!
Edit: of course rent isn’t the ONLY thing that’s up, I meant that in the context of investments, anything you would buy in the real world is up a ton. Usually by much more than the CPI says it is
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