Rent Prices Rose for the Third Straight Month According to Apartment List

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via Mike Shedlock

Rents were not falling as reported recently by Apartment List. Nor are Apt List estimates correct now. Let’s discuss what’s really happening and why Truflation is wrong as well.

Data courtesy of Apartment List, chart by Mish

Please consider the Apartment List National Rent Report for May (April Data).

Welcome to the May 2024 Apartment List National Rent Report. Rent prices ticked up for the third straight month, but rent growth remains modest, signaling ongoing sluggishness in the market. The national median rent increased by 0.5% in April and now stands at $1,396,1 but the pace of growth slowed slightly compared to last month. This is typically the time of year when rent growth is accelerating heading into the busy moving season, so the fact that growth stalled this month could be a sign that the market is headed for another slow summer.

Two Huge Problems

  • Apartment List Data is not Seasonally Adjusted
  • Apartment List Data reflects new leases only, about 9 percent of the market.

Last month, I noted Apartment List Reports Rent Prices Increase for the Second Month

Apartment List says the national price of rent is up for the second month after declining for six straight months. The measures are useful but only if you understand how best to use the report.

Apartment List said “For the last two years seasonal declines have been steeper than usual and seasonal increases have been milder. As a result, year-over-year rent growth dipped into negative territory last summer and has remained there since, currently sitting at -0.8 percent. In other words, as the market has cooled, apartments are on average slightly cheaper today than they were one year ago.”

I replied “Let’s stop right there because they aren’t.

I have covered this before, and Apartment List admits the problems.

Please consider the Apartment List April 8 report Report Rent CPI Remains Elevated Even as Rents for New Leases Dip

The difference between our index and the rent component of CPI reflects the fact that the two indexes are designed to measure different concepts. The Apartment List rent index measures composition-controlled price changes for new leases, while the CPI tracks rent changes across all households. Since only a small share of households sign a new lease in any given month, it takes time for changes in market-rate asking rents to filter through to the entire market.

In addition, there is the visually obvious seasonal adjustment issue.

Would You Believe?

Would you believe believe year-over year inflation is barely over two percent? That’s the Truflation claim as of April 17, 2024.

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Truflation Replicates and Compounds the Apartment List Error

Truflation uses Zillow, Trulio, Redfin, Apartment List and CoreLogic. It claims “Our methodology for calculating rental price changes incorporates both new rental agreements and rental renewals, which provides us with a balanced view of price changes over time.”

But Zillow, Redfin, and Apartment List all have a huge flaw. They only capture new leases when only about 9 percent of the people move each year.

Zillow uses asking rents not actual rents.

Truflation says “The BLS includes any government subsidies paid to the landlord in the total cost of the rent, which is also likely to skew the data to the upside.”

Apparently, if the government is picking up the tab, then the price increase is zero.

Truflation assigns a relative importance to housing of 23.2 percent whereas the CPI assigns a current weight of 36.2 percent.

Neither Truflation, nor the CPI, nor the PCE (the Fed’s favorite measure of inflation count home prices in their equation.

Zori Headed Back Up

Amusingly, Zillow measure (ZORI) has turned back up.

Home Prices Hit New Record High, Don’t Worry, It’s Not Inflation

The Case-Shiller national home price index hit a new high in February. That’s the latest data. Economists don’t count this as inflation.

Case-Shiller national and 10-city indexes via St. Louis Fed, OER, CPI, and Rent from the BLS

Not Inflation?!

Economists, including the Fed, consider homes a capital expense, not a consumer expense.

As a result, they all ignore economic bubbles and blatantly obvious inflation on grounds it’s not consumer inflation. This has gotten the Fed into trouble at least three times. The first was the dot-com bubble, then the Great Recession housing bubble and now.

It’s pathetic when you make the same major mistake over and over and over. It’s a result of groupthink.

For discussion, please see Home Prices Hit New Record High, Don’t Worry, It’s Not Inflation

Truflation repeats and compounds economic groupthink that housing prices just don’t matter.

Truflation Weighing

The above chart is from Truflation Methodology.

I contacted Numbeo and received this comment “Most of it crowdsourced. For rent pricing in USA approximately 100 [observations] per month. I think that for rental data Fred, Zillow, are more reliable, while our section for Restaurant and Food prices could be of more interest (for USA).”

I assume Truflation does not use Numbeo which has a mere 100 observations. I do wonder if at one time Truflation did attempt to crowdsource rent, a serious mistake.

Regardless, the Truflation example is interesting, and very flawed. Zillow, Apartment List, and Redfin, all have the same serious issues (with Apartment List having an additional seasonal adjustment issue).

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If Truflation does assign Apartment List, Zillow, and Redfin 20 percent each as does their example, it is assigning a combined weight of 60% to something that should have a combined total weight of roughly 9-10 percent!

Truflation should average all the flawed measures and give them a combined weight of say 9 percent not give each of many seriously flawed measures equal weights.

Truflation Claims Inflation is 2.06 Percent, Anyone Believe That?

On April 20, I asked Truflation Claims Inflation is 2.06 Percent, Anyone Believe That?

A Better Measure of Inflation?

Truflation wants to be a better measure of inflation. It isn’t. In attempting to fix some issues, it introduced others.

And it ignores the big elephant by insisting rising home prices have no part of inflation.

The 34 percent of the nation who rents would laugh at Truflation percentage weight of rent at 8.1 percent with a strangely calculated OER at 13.8 percent.

Inflation matters, not just misguided attempts to measure perceived consumer inflation.

We don’t need a more timely CPI which is all Truflation purports to be (but isn’t because it introduces other serious weight and methodology biases).

We have a huge housing mess because hardly anyone recognizes home prices as part of the inflation problem. Truflation increases the awareness problem.

Comment From John Burns

I asked John Burns, CEO of John Burns Research and Consulting, LLC “What do you make of reports that rents are falling or soon will?

He replied “Rents are falling in some of the markets below, and rising elsewhere.”

The list where “some” but not all are falling includes Charlotte, Austin, Raleigh, Phoenix, Nashville, Charleston, Salt Lake, Jacksonville, Denver, and Dallas,

The CPI report is on Wednesday. Month-over-month rent has risen at least 0.4 percent for 31 consecutive months. Perhaps this breaks the spell.

Since most leases renew May-September, it’s possible there is minimal or no abatement of the primary trend until then. Meanwhile, we have heard rent is falling or soon will for two years running.

The Fed’s Big Problem

As I have commented several times, The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate

At this point we appear to be stuck. There is no magic answer to solve the Fed’s dilemma.

And if you have a lot of faith in Zillow or Apartment list, rent is rising again.

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