The housing market has seen a glimmer of hope in November as housing costs rose at the slowest year-over-year pace since mid-2022. While home prices continue to remain high, there are signs that the worst may be over for rising rents.
According to the Consumer Price Index (CPI), which measures goods and services inflation on a monthly basis, there was a modest increase of 0.1% in November. Compared to the same period last year, the index was 3.1% higher. This reading has strengthened expectations that the Federal Reserve will maintain its current interest rate range.
Within the index, the measure of shelter inflation remained high compared to other categories. The shelter component saw a 0.4% gain from the previous month and a significant increase of 6.5% from one year earlier.
However, despite the high numbers, there is cause for optimism when looking at November’s shelter data. The year-over-year gain of 6.5% in shelter costs was the smallest increase since August 2022, according to unadjusted data. Annual shelter gains reached a peak of 8.2% in March and have been gradually slowing down since then.
In terms of rental costs, two sub-components measuring the cost of rent and owner’s rent-equivalent saw increases of 6.9% and 6.7%, respectively. Although slightly lower than the previous month’s figures of 7.2% and 6.8%, they still contribute to the overall higher housing costs.
It is important to note that while housing costs measured by the consumer price index remain higher than year-ago levels, private company data on asking rents presents a slightly different picture. This is due to variations among different companies in the rental market.
Overall, the housing market is showing some positive indicators as housing costs start to stabilize. While home prices remain a concern, the slower growth in rental costs suggests a potential relief in sight for renters.
Rising National Rent and Cooling Home Purchase Costs
According to recent data, the national rent in October surpassed the previous year’s levels by 3.2%. However, the median national rent in November was 1.1% lower than the same time last year. It is important to note that shelter costs, as measured by the consumer price index, tend to lag behind asking rent costs due to the inclusion of all leases rather than just asking rents.
A surge in new multifamily supply entering the market this year and the next is expected to keep rents relatively stable in 2024. A recent statement by ApartmentList suggests that rents will experience a slight increase next year, but will likely not exceed low single digits throughout 2024. The influx of new supply poses a significant challenge to demand, making it unlikely that it will be strong enough to outpace the new inventory.
National Association of Realtors data reveals that home purchase costs have also experienced a decline. In October, the median home sale price was 3.4% higher compared to the previous year. Although home sale costs are not directly factored into inflation data, they can influence rental prices in a similar fashion.
Despite rising mortgage rates, home prices have remained relatively strong; however, experts in the housing industry anticipate shifting dynamics in 2024. These changes could include fluctuations in mortgage rates and an increase in housing supply, which may lead to a decline in home prices.
Overall, while national rent continues to rise, it is expected to be kept in check due to the abundance of incoming multifamily supply. On the other hand, home purchase costs have cooled down but may still exert some upward pressure on rental prices.