Housing costs are clouding an otherwise glowing economy
Analysis by Allison Morrow, CNN
New York (CNN) — The numbers are in and the hot takes have been tweeted: Inflation is cooling, the stock market is humming right along, wages keep going up and jobs abound. Blessings upon this economy.
But most Americans aren’t exactly ready to pop open the Champagne just yet. We’re still languishing in a “vibecession” of sorts, even as surveys show that people generally feel pretty good about their own personal finances.
Despite all the good news, there’s one giant, inescapable reason why people don’t feel like the economy is as good as it actually is.
Rent, and housing generally, is still too damn high.
See here: The Consumer Price Index came in at 3.3% last month on an annualized basis. Meaning prices on the everyday goods and services you buy are about 3.3% higher on average than they were a year ago. Prices for some items are even going down at some major retailers, after executives realized their customers had enough of their pricing power shenanigans.
If you take a look at “supercore” CPI — the unofficial reading that excludes food, fuel and the cost of renting or owning a home — the picture is even rosier. Supercore prices were up just 1.9% from a year ago, right in the sweet spot that virtually every central bank in the world is aiming for.
Unfortunately, real life doesn’t let us just close our eyes and make the cost of food, gas and rent disappear.
Shelter costs — which include rent and an estimated cost of homeownership — were up 5.4% from a year ago. That’s a slight improvement from April, and far lower than their peak of 8.2% in March last year. (Before the pandemic, shelter inflation typically rose around 3.5% a year.)
“It’s an 18-wheeler riding its brakes down a mountain. We know where it’s headed, but it’s a slow descent,” said Jay Parsons, an economist and head of investment strategy at Madera Residential, a Texas-based apartment developer.
The monthly fluctuations in the CPI are just part of the complex housing puzzle. The CPI doesn’t weigh the cost of buying a home, which is its own separate nightmare at the moment.
“The housing situation is a complicated one,” said Fed Chair Jerome Powell on Wednesday, in his typically understated style. “Ultimately, the best thing we can do for the housing market is to bring inflation down so we can bring rates down, so that the housing market continues to normalize.”
It’s not exactly breaking news but: Housing supply is low, mortgage rates have been hovering around 7% for months, and home prices have continued to rise to all-time highs.
All of those factors have coalesced into a sticky market where no one can afford to move and even fewer can afford to buy.
And if you are among the lucky ones who manages to find a place you can afford, buckle up, because the costs don’t stop at closing.
According to a recent Bankrate study, US homeowners are now paying an average of $18,100 a year on home-related costs beyond the cost of the house; expenses that include property taxes, insurance, maintenance, energy and various other costs. That represents a 26% increase from four years ago, when the average annual cost to maintain a home was $14,400.
There are some early signs that the housing market is becoming a bit less stuck.
Zillow’s latest market report found that sellers are returning to the market, but they’re finding buyers have lost some enthusiasm.
Home sales in May were 6% lower than last year. That has helped partially restock the housing inventory, with the number of homes on the market rising 22% compared to last year’s near record-low level, according to the report. Inventory is still 34% below pre-pandemic norms, but that’s the smallest deficit in more than three years.
“Homeowners who may have put off listing their homes are done waiting,” said Orphe Divounguy, Zillow senior economist. At the same time, the one-two punch of inflation and high borrowing costs have discouraged first-time buyers, reducing competition for houses.
“If these trends hold, we’re likely to see price growth flatten or tick down over the next year,” Divounguy said.
Of course, as Powell noted in his speech Wednesday, it may take “years” for housing inflation to normalize.
“There’s not a silver bullet,” said Douglas Duncan, senior vice president and chief economist for Fannie Mae. “Part of it is access to land near to where people either want to live or must live based on their employment … There are a lot of little experiments taking place in different places, but no one has discovered a silver bullet yet. And we certainly don’t have that silver bullet.”
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