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Saturday, June 04, 2011

Skyrocketing rents could bump up rate of inflation

Please click onto the COMMENTS for the story.


Anonymous Tribune said...

Article by: JOSHUA ZUMBRUN , Bloomberg News

Skyrocketing rents could bump up rate of inflation

Some say the Fed is focusing too much on unemployment and not enough on housing

For all the attention given to almost $4-a-gallon gas, the biggest threat to containing U.S. inflation may be the shift away from homeownership, which is pushing up the cost of leases across the nation's 38 million rented residences.

Shelter represents about 40 percent of the consumer price index excluding food and energy and accounted for almost one quarter of the 1.3 percentage point rise in April. That share has grown as falling home prices shake Americans' confidence in housing as an investment.

Federal Reserve Chairman Ben Bernanke and his colleagues say they'll hold interest rates at record lows for an "extended period," based on an assessment that slack in the economy from 9 percent unemployment will help subdue core inflation and any threat of accelerating prices likely will be "transitory." Not everyone agrees with that judgment.

"They should have looked at rents," said Maury Harris, chief U.S. economist in New York at UBS Securities, whose team at UBS was the most accurate inflation forecaster over 2009 and 2010, according to Bloomberg calculations. "They're putting too much weight on 'the slack is all that matters' theory. It matters -- but, for heaven's sake, it's not all that matters."

Housing has become "a contributor to inflation, and it continues to rise," said Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, with $22 billion in assets under management. That's partly why he's advising clients to look at "a heavier mix of equities, and maybe the use of TIPS to mitigate the effects inflation could have over 10 years or longer."

Investor expectations of rising prices in the next decade, as measured by the spread between Treasury Inflation Protected Securities and nominal bonds, have fallen to 2.28 percent from 2.66 percent on April 11, the year-to-date high.

4:44 PM  
Anonymous story continued said...

McCain estimates that rents have accounted for about 1 percentage point of the last decade's 2.4 percentage point rise in prices and soon may revert to or overshoot this trend.

"The worse it gets for apartment rentals, the more you're going to see that number adding to the overall inflation rate," he said.

Harris calculates that prices excluding food and energy have risen at an annual rate of 2.1 percent so far this year based on the consumer price index. The Fed's preferred gauge, the Department of Commerce personal-consumption expenditure index, rose 1 percent in April from a year earlier. Including all items, it increased 2.2 percent.

Policymakers are "misreading the inflation, period," Harris said in an interview.

Confidence in homeownership has been battered in the wake of the subprime-mortgage crisis, which pushed housing prices down 33 percent since July 2006, based on the S&P/Case-Shiller index of property values in 20 cities. Prices in these cities fell in March to the lowest level since 2003.

More than 3 million homes have been seized in foreclosure since the start of 2008, according to RealtyTrac Inc., and the rate of homeownership has fallen to 66.4 percent, the lowest since 1998, data from the Census Bureau show.

U.S. apartment rents climbed 5 percent in the 12 months through April, according to research company Axiometrics Inc. Effective rents in the first quarter, or what tenants actually paid, rose in 75 of the 82 markets tracked by data provider Reis Inc., which said the average was up 2.5 percent from a year earlier to $991 a month.

From January until October 2010, rents helped hold down overall inflation as the year-over-year change in shelter -- mainly rents and what owners would receive if they rented their homes -- was negative, according to data from the Bureau of Labor Statistics.

Then the component turned positive in November. Rental yields, or rents relative to home prices, will climb this year to the highest level in more than 20 years and remain elevated for as many as four years, predicts Paul Dales, senior U.S. economist in Toronto for Capital Economics Ltd.

4:44 PM  
Anonymous Anonymous said...

And what role did code enforcement have in raising the rents?

1:06 AM  
Anonymous BoardEqualization said...

Still Fighting with the City and County Board of Equalzation they delegate their Authority/Jurisdiction to Board making $300 daily, Why not delegate their Salarys.
Public Service HaH

9:32 AM  
Anonymous MN GovShutdown E-File said...

MN Gov Shutdown ? Read the Briefs also at The Courts deny the bloggers the Right to E-File Separation of Powers costing the Taxpayers a Fortune

9:36 AM  

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