With BofA predicting that the US is facing a period of “transitory hyperinflation” as a result of soaring commodity prices in everything from metals to food…
The @UNFAO global food price index rose for an 11th month in April to a seven year high at 120.9, representing a y-o-y jump of 30.7%. Food #inflation has not risen this fast since 2011 with all sectors rising led by sugar and oils – #agriculture #grains pic.twitter.com/V78egWukzI
— Ole S Hansen (@Ole_S_Hansen) May 6, 2021
…. and beyond, in what increasingly more warn is a stagflationary burst right out of the 1970s playbook…
… it makes sense that home prices are also surging thanks to trillions in stimmy checks, near-record low mortgage rates and an exodus away from cities, and as we noted two weeks ago that’s precisely what they are doing, with Redfin reporting an 18% jump in median home sale prices to an all time high…
… as a record 58% of all houses sell within two weeks of listing, of which 45% sell for more than their listing price, also a record.
Amid this dismal “transitorily hyperinflationary” landscape, where those whose incomes aren’t similarly hyperinflating find themselves at risk of being unable to afford a roof above their head, there was one ray of hope: renting, with rent prices tumbling in recent months and according to the BLS’ monthly CPI metric, rent inflation had just dropped to the lowest in a decade, just below 2.0% annually…
… which due to the way the CPI basket is weighted acted as a key anchor on overall CPI rates, and served to distort the broader inflationary picture. In short, the Fed would look at the relatively tame core CPI which was only tame thanks to “tumbling” rents and would conclude that there is nothing to worry about.
Only it now appears that not only was the government misrepresenting the actual data in hopes of extracting as much stimulus from the Biden regime by pretending inflation is low and “contained”, but that rents are in fact soaring once again.
On Thursday, American Homes 4 Rent, which owns 54,000 houses, increased rents 11% on vacant properties in April, the company reported in a statement:
… Continued to experience record demand with a Same-Home portfolio Average Occupied Days Percentage of 97.3% in the first quarter of 2021, while achieving 10.0% rental rate growth on new leases, which accelerated further in April to an Average Occupied Days Percentage in the high 97% range while achieving over 11% rental rate growth on new leases.
Invitation Homes, the largest landlord in the industry, also boosted rents by similar amount, an executive said on a recent conference call. Or, as Bloomberg puts it, record occupancy rates are emboldening single-family landlords to hike rents aggressively, testing the limits of booming demand for suburban rentals.
While soaring housing costs had put homeownership out of reach for most Americans, rents had been relatively tame for much of 2020. But in recent months, rents have also soared as vaccines fuel optimism about a rebound from the pandemic, and a reversal in the city-to-suburbs exodus. The increases, as Bloomberg so eloquently puts it, “may add to concerns about inflation pressures.” Mmmk.
“Companies are trying to figure out how hard they can push before they start losing people,” said Jeffrey Langbaum, an analyst at Bloomberg Intelligence. “And they seem to be of the opinion they can push as far as they want.”
Why the change? Well, in the early months of the pandemic, the big single-family rental companies slowed rent hikes amid an exodus of renters fleeing the big cities as a result of militant BLM protests and covid, preferring to maximize occupancy during an uncertain time for the economy. But now, widespread vacancies are giving them pricing power.
What is remarkable is that this price hike is likely to stick: Invitation Homes reported an occupancy rate of more than 98% during the first quarter, freeing the company to raise prices by more than 10% on vacant houses in April. Invitation Homes is targeting increases of as much as 8% for tenants seeking to renew leases in coming months, an executive said on a recent conference call.
Single-family landlords have had the upper hand over apartment owners in the age of remote work, but those advantages might dissipate as employers summon workers back to the office.
“How much of the demand is temporary?” said Langbaum. “I do believe some component of it will revert back to urban markets.”
So as rent rebound with a vengeance, and the CPI basket’s all important Shelter and Rent inflation series (which also serves as a bseline for the Owner Equivalent Rent series) jerks higher, how much longer can the Fed pretend that the vastly overheating US economy is not in a “transitory hyperinflation“, or at least on the verge of stagflation.