Why housing inflation looks sticky
Inflation cooled even more than expected in August. The personal consumption expenditures index — released Friday — clocked in at 2.2%, which is down from 2.5% in July. Still, one part of inflation that’s proven to be super sticky is housing.
Housing inflation is stubborn because there’s not enough housing, per Susan Wachter, a professor of real estate at Wharton.
“Demand continues and the supply is constrained,” she said.
That has to do with housing stock and interest rates. Rates have come down, but not enough for homeowners to sell. Wachter said the average existing rate is around 4%.
That keeps home prices high, “pushing people into the rental market because they simply cannot afford to buy a home,” she said. And that also pushes up rent.
But housing appears a bit stickier in this report than it really is.
Because the category includes old leases at higher prices, “the rent part of both the CPI and PCE inflation measures tend to lag and come down more slowly than other prices in the index,” explained Ken Kuttner, a former economist at the New York and Chicago Feds.
We might not see falling rents reflected in inflation data until the middle of next year, he added.
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