March rents: More acceleration

Anatomy of a nosebleed.

Consistent with what providers of messier data like Realtor.com have already published, Zillow data shows that nationwide rents continued their acceleration into March, to +17.2% y/y.

The headline won’t surprise anybody, but the internals are really bad. Here is the 2 year stacked inflation rate for the past 8 months:

03/22: 18.03%
02/22: 17.3%
01/22: 15.58%
12/21: 15.52%
11/21: 14.74%
10/21: 14.59%
09/21: 13.53%
08/21: 11.37%

Does this matter? Not necessarily. April data will be much more telling, as it will incorporate pass-through from the massive fixed-income meltdown that really accelerated in March. Additionally, I would guess that 50-60% of rents roll over in June/July/August, with higher volumes in May and September too; on a volume-adjusted basis, the recent prints are much less important than the April and May prints.

However, the spread between realized and officially-reported rent continues to blow out.

According to the BLS, March rent inflation was +4.99% (lol), accelerating 24bps yoy from February.

CPI figures cannot come down until government-reported rent, which runs on a 6 month lag to realized rent, starts closing the gap with realized rent. Therefore, we are more than 6 months away from a peak in CPI, unless the 70% of the CPI that is not rent starts deflating in unison.

If the Fed is going to raise rates until inflation stops, they have a very, very, very long way to go.

Mathematically, the national average (+17.2%) would rank 31st of the 107 cities in Zillow’s March sample, if it were a standalone city.

8 out of the 10 fastest-growing-rent MSAs are in Florida. 17 out of the top 20 are in states with one-party Republican state governments (FL, TX, TN, UT, AZ) — which also make it easy to build new housing. The only exceptions are Vegas (#10), Durham NC (#20), and New York City (#18).

The underperformance of San Fransicko is truly unique, when taking into account its very easy comps. NYC’s 18th national ranking is almost entirely attributable to its easy comps from a year ago, for example. But SF, which has an almost identical year over year comp to NYC, is still ranked 86th out of 107 cities nationwide.

On a 2 year stacked basis, NYC is at +11.5%, well below the national average (+16%). But SF rent was up a mere 3% rent over 2 years — well behind even Minneapolis, which was completely devastated by post-George Floyd race riots and an increase in violent crime unmatched in the country.