Inflation Measures Not Capturing Housing Costs, CoreLogic Warns
Inflation is being underestimated, particularly in housing costs, CoreLogic Principal Economist Molly Boesel is warning.
Official measures, such as the Consumer Price Index, showed that inflation was largely under control for all of 2020 and the early part of 2021.
But Boesel cautions the numbers didn’t capture soaring single-family rents that much of the country experienced starting late last year with the single-family increases higher in some metros than others.
She spotlights Phoenix as one example. Phoenix has seen some of the highest population growth in the country which has propelled rent increases.
In July, CoreLogic’s single-family rent index in Phoenix increased by 19%, the fastest of any of more than 100 metro areas the firm looks at and at more than double the national rate. However, the owners’ equivalent rent measure used in the core CPI grew by just 5%.
When the single-family rent index is used to measure rent equivalence for owner-occupied homes, core inflation runs two-to-three percentage points faster than reported for the past 10 months.
Houston is another market where the economist said CPI and other official measures have understated inflation.
For July, the CoreLogic single-family rent index increased 9% for July, compared with 1% for the CPI owners’ equivalent rent.
Boesel pointed out single-family rent growth is more variable than the owners’ equivalent rent, but it also experiences turning points sooner.
In a separate analysis, CoreLogic Chief Economist Frank Nothaft has written that tenant rent and housing characteristics are used to calculate an “equivalent” rent for owner-occupied homes in the CPI index. During the pandemic, this method may have led to distorted estimates for owner-occupied rent because most tenants live in multi-unit properties whereas 9-in-10 owner-occupants live in one-unit homes.
He noted since the pandemic began, families have revealed a preference for single-family homes over high-rise apartment buildings. High-rise properties have had a rise in vacancy and slower rent growth while one-family rental homes have had a decline in vacancy and faster rent growth.
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