Feds Build New Index to Track Rent Inflation For New Renters
Rent may be falling quickly, but any drop is unlikely to impact inflation measurements until next year because of a lag in the data.
To fix that, researchers at the Federal Reserve Bank of Cleveland partnered with the Bureau of Labor Statistics (BLS) to create a rent index based on new tenants rather than the average of all renters.
According to the new renter index, rent for new tenants was growing at a 6 percent rate in September, compared to 11.9 percent the previous quarter, falling six points in between. In comparison, the traditional BLS gauge showed rent growth at 6.5 percent above benchmark in September, 0.05 percent more than the previous quarter, according to a paper by the researchers published earlier this week.
That’s because the all-renter index lags behind new renters by about a year, according to the researchers.
This is important because the cost of shelter makes up 32 percent of the Consumer Price Index, but rent deflation won’t show up in official inflationary measures for months because of the way rent is tracked. Shelter in CPI is based on the BLS Housing Survey, which is collected from a representative sample of renters who are surveyed every six months. It’s therefore known as a repeat-rent index.
The new tenant repeat-rent (NTRR) index created by the researchers uses the same survey but restricts the data to move-ins going back to 2005. As a result, the sample size varies from 14 to 23 percent of the full data set, following seasonal patterns and economic cycles. The sample size fell to just 750 households at the start of the pandemic, for example, when fewer people were moving.
Alternative data sources that are used by the real estate industry, including the CoreLogic SFRI and the Zillow Observed Rent Index, more closely track the new tenant index than the traditional CPI index because they are largely based on new tenant rents, according to the researchers. That’s despite the fact that they tend to be skewed toward higher-end and newer units that are listed on rental platforms.
According to the Zillow index, rent was down in 70 of the 100 largest cities in November compared with the previous month, and most cities peaked somewhere between July and September.
In the New York MSA, rent was down 1.3 percent month over month in November, and 2.1 percent from the August peak. Rents in Los Angeles declined negligibly from its peak in September, while rents in Miami and D.C. both slipped 0.8 percent in November compared with peaks in July and September, respectively.
The largest changes were in Henderson City, Nev. and Boise, Idaho, which both saw rents fall more than 5 percent from their July peaks. Henderson was also the only city, out of all 100, to have rent fall year-over-year. On the other extreme, Naples, Fla. had by far the highest increase in monthly rent, coming in at 4.6 percent, compared with 1.4 percent as the next highest.
Chava Gourarie can be reached at firstname.lastname@example.org.