Home under construction in Englewood Cliffs, NJ on November 19, 2024.
Adam Jeffrey | CNBC
If President-elect Donald Trump wants to push inflation back to more tolerable levels, he will need support from housing costs, where federal policymakers have limited influence.
November’s Consumer Price Index report included a variety of news on the shelter-in-place front, which accounts for a third of the closely tracked inflation index.
Meanwhile, the category recorded the smallest full-year increase since February 2022. Additionally, the two main rent-related components included in the index experienced their slowest monthly increases in more than three years.
However, the annual rate of increase remained at 4.7%, the highest level since mid-1991, when the CPI inflation rate was hovering around 5%, excluding the coronavirus pandemic. According to the Bureau of Labor Statistics, housing contributes about 40% of monthly price increases, more than food costs.
The annual rate of CPI has now risen to 2.7% (3.3% excluding food and energy), but inflation remains consistently convincing at the Fed’s It is not clear that we are on track to reach the 2% target.
“Over time, rent growth will start to slow year-over-year,” said Lisa Sturtevant, chief economist at BrightMLS, a Maryland-based listing service that covers six states and Washington, D.C. is expected.” However, I feel like it will take some time. ”
Still rising, but not as fast
In fact, housing inflation has continued to fall slowly and unevenly since its peak in March 2023. Like the overall CPI, the housing component continues to rise, albeit at a slower pace.
The housing crisis is caused by a continuous cycle of supply exceeding demand, a condition that began in the early days of COVID-19 and has not yet been resolved. Housing supply in November was about 17% below levels five years ago, according to Realtor.com.
Policymakers are paying particular attention to rents, and the news is mixed.
According to real estate market site Zillow, the national average rent in October was $2,009 per month, down slightly from September but still 3.3% higher than a year earlier. Nationally, rents have increased by about 30% over the past four years.
Turning to housing, costs continue to rise as well, made worse by high interest rates that the Federal Reserve is trying to lower.
The central bank has cut the benchmark borrowing rate by three-quarters of a percentage point since September and is expected to cut it by another three-quarters of a percentage point next week, but in reality the typical 30-year mortgage rate is lower than the Fed’s. has risen to almost the same level. Cut in the same time frame.
Some economists predict that other policies, such as tax cuts and tariffs, will further increase inflation fears, all of which pose a potential threat to President Trump.
“We know that some of the initiatives proposed by the president-elect will be highly inflationary, so the prospects for continued progress toward 2% are less certain than they were six months ago,” Sturtevant said. I think there is,” he said. “I don’t feel particularly compelled by anything that suggests that targeting supply issues is something the federal government can do meaningfully, and certainly not in the short term.”
optimistic for now
During his presidential campaign, Mr. Trump made deregulation a cornerstone of his economic policy, saying that deregulation would lead to housing gains by opening up federal land for construction and generally lowering barriers for home builders. This may also have ripple effects on the market. President Trump also strongly supports lowering interest rates, but monetary policy is largely outside his purview.
Trump’s transition team did not respond to requests for comment.
The mood on Wall Street was generally optimistic regarding housing conditions.
“Rent prices may finally be normalizing to levels consistent with 2% inflation,” Bank of America economist Stephen Juneau said in a note. Economist Krushna Guha, head of central bank strategy at Evercore ISI, said November’s housing data “will be seen as encouraging for the Fed.”
Still, Robert Frick, corporate economist at Navy Federal Credit Union, said shelter costs “continue to be the biggest driver of price increases, and it’s not reassuring that the rate of increase has slowed.”
That could pose a problem for President Trump, who faces a potential catch-22 that will make housing burden relief difficult to resolve.
“We’re not going to lower rates until shelter costs go down. But we can’t lower shelter rates until rates go down,” Sturtevant said. “We know there are some wild cards that we may not have talked about a couple of months ago.”
