December rent inflation update: Yikes

November's year-over-year decel in rents didn't last long.

This is the 4th post in a series that tracks Zillow’s home value and rent data, which is by far the cleanest dataset of like-on-like home prices and rents in the United States. Unlike ApartmentList and some other widely-quoted rental platforms, Zillow cleans its data religiously, strips out home improvement spending, and allows for true like-on-like property changes in value to be measured. With Zillow’s data, the rent of a one-bedroom apartment in Queens can be compared with other one-bedroom apartments in Queens that didn’t have significant interior reinvestment—not a one-bedroom apartment in Kansas City, or a messy average of other one-bedroom apartments nationwide.

November Zillow update

October Zillow inflation update

August Zillow rental inflation update

Generic inflation comment (late August)

The Zillow y/y inflation numbers are below.

The fabrication otherwise known as the CPI had rent inflation at 4.2% in December. If you didn’t get a 10% pay raise in 2022, you got a pay cut.

I was very surprised by the sudden 2nd-derivative change in November, and said then:

I’m going to assume that the superhot suburban markets are cooling off by more than the blue capital cities are mean-reverting, combined with a comp effect. But I’ll also wait before calling a top here (and keep in mind that for rent and home transactions, which is what Zillow measures, this is seasonally the slowest time of the year.)

The December data point, like the November data point, probably has very weak transaction volume — the summer months are the ones that matter — and should be somewhat discounted. However, its reacceleration against a significantly tougher comp does not bode well for the coming months (the 2 year stack accelerated to 13.53% from 12.4% from November to December). [post edited for math error]

CPI prints for the next 6 months thus has very strong tailwinds, which will increase pressure on the Fed to tighten. I’m starting to think crypto is in for a longer winter than just the last couple of months …