February rent inflation update
Effective rent inflation reaccelerates 52bp to 16.1% y/y (on a clean comp) -- a new cycle high.
Like-on-like rent inflation (same-number-bedrooms, same-neighborhood, no major home improvements), year-over-year, for all Zillow MSAs (108 this month) meeting a minimum transaction threshold:
The gap between realized rent inflation and government-reported inflation (whose BLS methodology causes it to lag reality by 6-9 months) is not even narrowing. In February, the cost of shelter rose from 4.1% to 4.5% y/y.
(Month to month, the numbers are depend on which Zillow MSA’s were present in each of the prior 26 months of the subsample, so the monthly comps do vary a bit from month to month.)
This 30% component of CPI (the blue line below)—and maybe 40% of core CPI—thus will not peak for 6 more months. The YoY rate of change will slow aggressively starting with next month’s data point, as comps get 1350bps easier over the next 6 months.
These newer highs are occurring even as the best-performing MSAs in the US market have hit the point of demand destruction, with pricing clearly starting to roll over.
There will be explosive after-tax wage compression as rents roll over in 2Q and early 3Q.
Combining this with what’s going on in commodities, and the Russia-Ukraine war’s shift into an attrition phase, and we will have a savage recession on our hands (in real terms at least) in 2Q-3Q.
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I get the housing inflation argument (in part because I'm a landlord), but I don't see how higher housing prices leads to unemployment and GDP contraction?