US Home Prices 'Break the Roof with a High Kick'... Driving Up Rent and Inflation

Severe Housing Shortage... Rent Soars
June Rent Up 7% Year-on-Year
Possible Further Increase After Forced Eviction Ban Ends in September
Concerns Over Inflation Surge Stimulated

[Image source=EPA Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Korean expatriates working in New York, USA, have recently been troubled by housing issues. This year, the housing shortage has worsened, causing rental prices to soar.

On the 22nd (local time), an expatriate said, "In the Tenafly area, preferred by expatriates, the monthly rent for a three-bedroom house, which used to be around $3,500, has risen to the $4,000 range, an increase of about $1,000." For a four-bedroom house, the rent is around $5,000.

Even so, due to the shortage of houses, open houses are crowded with tenants, leading to tense contract negotiations. As many tenants compete, landlords require higher offers than the initially proposed rent to secure a lease.

Additional burdens beyond rent have also increased. Costs such as garden maintenance and water bills, which landlords typically covered, have now become the tenants' responsibility.

With the US housing market booming, housing prices and rents have surged sharply, raising concerns that this could not only increase the burden on buyers and tenants but also lead to higher inflation.

On this day, The New York Times (NYT) reported, citing data from online housing sales company Zillow, that June rents rose 7% compared to the same period last year. The increase since May also reached 1.8%.

The problem is that the upward trend in housing rents may continue. There is widespread concern that rent increases could outpace housing price growth, leaving room for further rises.

According to the National Association of Realtors (NAR) survey released on this day, the median price of existing homes sold in the US in June was $363,300, up 23.4% from a year ago. The median home price in the US has been setting record highs daily since surpassing $300,000 in July last year.

Lawrence Yun, chief economist at NAR, stated, "Since the COVID-19 pandemic, as jobs have recovered, demand for rental housing has significantly increased." He explained that the resumption of economic activities has fueled rental demand, leading to rent hikes.

The reason rent increases have been lower than housing price increases is due to federal government restrictions on evictions for those unable to pay rent because of COVID-19. This regulation will end in September. There are significant concerns that landlords will raise rents through tenant turnover afterward.

Rising housing rents pose a bigger concern. Rent increases are a major factor stimulating inflation. According to US media, housing rents account for about 30% of the Consumer Price Index (CPI) calculation. Although CPI is not the most important inflation indicator considered by the US Federal Reserve (Fed), continued CPI increases could heighten inflation concerns. In June, the CPI surged 5.4% year-over-year, fueling inflation worries. Inflation concerns could pressure early interest rate hikes.

NYT reported that the 'rental equivalence' used to measure rents is rising faster than expected. Alan Dittmeister, an analyst at investment bank UBS, said, "Rental equivalence is rising sharply, but the situation is expected to worsen by the end of this year and early next year."

The rapid rise in housing rents and its inflationary pressure could be a burden for the Joe Biden administration. This is because the current situation could overturn President Biden's emphasis that inflation increases are temporary. Rising inflation could also increase the federal government's interest burden as it seeks to expand fiscal spending.

There are also expectations that rent increases will be limited. Michelle Meyer, an economist at Bank of America (BoA), forecasted, "Rents may rise slightly, but without significant wage increases, they will not rise sharply."

This content was produced with the assistance of AI translation services.