Rent inflation update: April + May 2022

The Fed can’t stop tightening until realized rents, with their 12-month lead time over CPI-reported rent (30% of total inflation), normalize to around +5% y/y.

I refreshed my Zillow script to incorporate data for April and May. The data was a little more bullish for rental inflation than I had expected.

While the sharp downtick seems bearish, you have to look at the sum of the 2021 and 2022 y/y numbers. The 2-year stacked comp is still accelerating, from +15% at the beginning of the year to +20% today.

Another way to look at rents would be plotting rents vs the national average on 1/1/2020. The picture there is consistent with the stacked comp view, but not quite as bad; it definitely doesn’t look like it’s accelerating.

This is the period when a huge number of 2-year, Covid-depression leases in blue cities will roll over. I expect blue cities will see another wave of emigration and economic underperformance as people recoil from these +30-50% effective rent increases after factoring in incentives.

Looking at the city-by-city data, there isn’t much that stands out. Florida still has 9 out of the 10 fastest growing MSA’s. 31 out of 40 of the fastest-growers are in red states. Lockdown fetishist states, mainly West Coast and Ohio, were massively overrepresented among the weakest MSAs, despite the West Coast having the most constricted supply and anti-development rules in the country.

Certain very-high-performing, never-had-a-real-Covid-dip metros like Phoenix and Boise City are seeing 5-15%+ decelerations in y/y growth, as they appear to have hit peak influx capacity, at least for the time being. New York City is a very strong outlier among the biggest blue cities. Texas, for whatever reason, has fallen off the map in terms of red-hot MSAs, despite its allegedly low taxes.