Homes under construction in Englewood Cliffs, New Jersey on November 19, 2024.
Adam Jeffery | CNBC
If elected President Donald Trump it will bring inflation to a more sustainable level, which will require support for housing costs, an area where federal policymakers have limited influence.
November consumer price index report it contained mixed news on the shelter front, which accounts for a third of the near-term inflation rate.
On the one hand, since February 2022, the category had the lowest increase of the entire year. In addition, the two main rent-related components of the measure had their lowest monthly gains in more than three years.
But on the other hand, the annual increase was still 4.7%, excluding the Covid era, last seen in mid-1991 when CPI inflation hovered around 5%. Housing contributed about 40% of the monthly increase in the price gauge, according to the Bureau of Labor Statistics, more than food costs.
With the annual rate of CPI rising to 2.7%—3.3% excluding food and energy—it is not clear that inflation will return consistently and credibly to the Federal Reserve’s 2% target, at least not until housing inflation eases further.
“One would expect that over time, we would start to see slower year-over-year rent growth,” said Lisa Sturtevant, chief economist at Bright MLS, a Maryland-based listing service that covers six states and Washington, DC. I think it’s taking a long time, though.”
Still rising but not as fast
In fact, since housing inflation peaked in March 2023, housing inflation has been lower since it peaked in March 2023.
The housing problem has been caused by a constant cycle of supply outstripping demand, a situation that started in the early days of Covid and has yet to be resolved. Housing supply in November it was about 17% below the level of five years ago, according to Realtor.com.
Renting has received special attention from politicians, and the news there has also been mixed.
The national average rent in October was $2,009 a month, down slightly from September but up 3.3% from a year ago, according to real estate market site Zillow. In the last four years, rents have risen by about 30% nationally.
Housing costs also continue to rise, exacerbated by high interest rates that the Federal Reserve is trying to lower.
Although the central bank has reduce its benchmark borrowing rate At three-quarters of a percentage point since September, and expected to drop another quarter-point next week, the typical 30-year mortgage rate has actually risen as much as the Fed has cut it over the same time period.
All of the converging factors pose a potential threat to Trump, whose policies, such as tax breaks and tariffs, are expected by some economists to add to the inflationary faltering.
“We know that some of the initiatives proposed by the president-elect are quite inflationary, so I think the chances of continuing to 2% are less certain than they might have been six months ago,” said Sturtevant. “I don’t feel like there’s anything in particular that suggests that targeting the supply issue is something that the federal government can reasonably do, certainly not in the short term.”
Optimism for now
During the presidential campaign, Trump made deregulation a cornerstone of his economic platform, which could spill over into the housing market by opening up federal land for construction and generally lowering barriers to home builders. Trump has also been a strong advocate of lower interest rates, even though monetary policy is out of his hands.
The Trump transition team did not respond to a request for comment.
The mood on Wall Street was generally upbeat about the housing picture.
“Ultimately, rents may normalize to levels consistent with 2% inflation,” Bank of America economist Stephen Juneau said in a note. November’s housing data “will be seen as encouraging by the Fed,” wrote economist Krushna Guha, head of central bank strategy at Evercore ISI.
Still, shelter costs “remain the primary source of higher prices, and the fact that the rate of increase has slowed is no comfort,” said Robert Frick, corporate economist at Navy Federal Credit Union.
That could spell trouble for Trump, who faces a potential Catch-22 that will make it difficult to ease the housing burden.
“We’re not going to drop the rates until the shelter costs come down. But the shelter can’t come down until the rates are lower,” Sturtevant said. “We know that there are some wild cards, maybe two or three months ago that we haven’t been talking about.”
