MNI INTERVIEW: CoreLogic Sees US Shelter CPI At 7% By Yearend

Owners' equivalent rent, which makes up 40% of core U.S. CPI, will likely double to 7% by December based on current single-family home rental price trends, CoreLogic chief economist Frank Nothaft told MNI on Tuesday.

That would keep core CPI elevated at around 4% by year-end if every other component fell back to 2%, he said. Alternatively, if one assumes all other components registered zero, core CPI would still be running just under 3% on the acceleration in the rent measure alone.

Because a typical lease lasts a year, only a sliver of the BLS's monthly sample of rent prices has seen a recent adjustment to market rental rates. A regression analysis found that the rental price figure known as OER lags CoreLogic's single-family rent index by about 12 months.

"The OER data will adjust but very gradually," Nothaft said.

CLEARLY ABOVE FED'S TARGET

"Given we found that single-family rents were up 11.5% in the latest month, three times faster than OER has increased over the past 12 months, we project the growth rate of OER is going to continue rising and peak at a 7% annual rise by the end of 2022," he said.

That will keep some upward pressure on core CPI, which came in at 5.5% in December. "Core CPI will be slowing this year even with the 7% projection we have for rent, but it will remain elevated. It’s clearly above the Fed's 2% target," Nothaft said.

The FOMC's December projection called for its preferred price measure, core PCE inflation, to slow to 2.7% this year from 4.4% in 2021.

Over the coming year, Nothaft does expect some moderation of single-family rents.

Investors buying up single-family homes in the past several months will bring some new supply in the rental stock and slow some of the pressure on rent growth. And if Covid-19 infection rates continue to wane, tenant families are also more likely to return to apartment buildings.