"US Rent Increases Raise Possibility of Long-Term Inflation"

WSJ "Housing Supply Shortage Drives Up Home Prices... Likely to Be the Biggest Inflation Factor"

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Suhwan] An analysis suggests that the biggest unpredictable variable in U.S. inflation over the next year will be housing costs.

The Wall Street Journal (WSJ) reported on the 8th (local time) that "home prices have recently been on the rise," adding, "This price increase is not a temporary phenomenon but is expected to continue for several years."

According to the report, Fannie Mae, a government-sponsored mortgage guarantor, forecasted in its June report that the rent growth rate would gradually increase from about 2% in May to 4.5%.

It also predicted that the core Personal Consumption Expenditures (PCE) price index, a key inflation indicator emphasized by the U.S. Federal Reserve (Fed), would ease somewhat to 3% by the end of 2022, with 1 percentage point of that inflation attributed to housing costs.

In June, the core PCE price index recorded a 3.5% year-over-year increase.

If this forecast proves accurate, the share of housing costs in inflation growth will reach its highest level since 1990.

WSJ reported that as of June, the annual rent increase rate in the U.S. was stable at 1.9%, compared to the rise in home prices, but the atmosphere is gradually changing due to the increase in housing prices.

In fact, the S&P CoreLogic Case-Shiller Home Price Index rose 16.6% in May compared to a year earlier, marking the highest level since statistics began in 1987.

However, since homes are considered long-term investments, their sale prices are not directly reflected in inflation but are converted into imputed rent, which showed a 2% annual increase as of April.

Nevertheless, amid changes such as housing supply shortages, landlords have been significantly raising rents for several months.

Invitation Homes, the largest supplier of single-person household housing in the U.S., raised rents by 8% in the second quarter.

WSJ noted that while such a rate of increase may not be sustainable, rental demand is growing as some have given up on buying homes due to rising prices.

The media also reported that experts expect landlords to put upward pressure on rents as they try to pass increased tax burdens onto tenants.

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