June 2024 Erdmann Housing Tracker Update (with inflation notes)

The boooooring housing expansion continues, and isn’t it grand? We love boring.

First some notes on inflation.

CPI (excluding shelter, the way God intended) has been running along 2% with some noise for 2 full years now. It was due for some downward noise, and this month we got it. Maybe the Fed will have some cover to accelerate its rate hike cut plan. I think there would be little risk to getting down to 4% or lower at any time.

The trailing 12 month Zillow rent estimate is ticking up while the CPI shelter component and CPI core excluding shelter have ticked down. Of course, the CPI shelter component is just still working off the last remaining 2022 inflation that is reported with a lag because of CPI methodology.

Figure 1

Figure 2 shows cumulative excess rent inflation (estimated with Zillow’s ZORI measure) to core CPI excluding shelter. For now, it looks like we’re sidling right back up to that decade-long trend of approximately 2% excess annual rent inflation.

This suggests that the sustainable rate of new home building, which would eliminate excess rent inflation, is higher than the current rate of about 1.6 million units annually.

Figure 2

Figure 3 compares Zillow’s ZORI rent estimate for the US to its ZHVI price estimate for the US. The combination of the trends in these charts continues my general thesis that things like the work-from-home boom or low interest rates didn’t have much of a permanent effect on US post-Covid housing markets.

Rents have continued to reflect a combination of general inflation plus a relatively constant excess inflation due to our housing shortage. Construction hasn’t changed much since 2016 and neither has the rent inflation premium.

And prices have basically risen along with rents, in the same fashion as they were before 2020.

Figure 3

There’s a little more inflation discussion below the paywall, this month’s update on the EHT model, and some general discussion of the state of the housing market.