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Rents still rising with regional riffs

Rent CPI has been outpacing headline CPI for 20 years

If you’ve been paying rent just about anywhere in the United States, you likely already know that rent has been going up. And the FRED graph above shows exactly that. Average rent in U.S. cities has risen by 85% in just the past 20 years. That’s 30 percentage points above the 55% inflation that’s occurred between then and now (July 2021, at the time of this writing).

Rent growth in the Northeast and South has stayed close to the national average in recent years, while growth in the West has surpassed the national average. The exception is the Midwest, where the regional average has lagged a bit behind the national average. But average rent in all regions still outpaces inflation, with Midwest rent growth remaining the closest (only 7 percentage points above). Since the end of the COVID-19-induced recession, though, inflation has grown faster than rent, potentially a result of the COVID-19-related financial stimulus and rent relief in the form of eviction moratoriums.

The second graph shows that rent growth in specific urban areas pretty closely matches the corresponding regional growth from the first graph. Renting is largely an urban phenomenon, so it shouldn’t be a surprise the biggest cities in these regions accurately reflect the regional trends: Rents in Boston, Detroit, Houston, and Seattle have all grown at rates that very closely track the rates in the Northeast, Midwest, South, and West.

Given these rent increases, are there changes in regional population growth—say, population booms in places with smaller rent growth and busts in places with higher rent growth? Not quite.

Our last FRED graph shows the population growth of two urban areas that are above the U.S. average and two areas that are below it. This dividing line doesn’t separate areas of slow rent growth from areas of fast rent growth, however: Cities like Boston and Houston, with average rent increases, can land in either quadrant. Cities like Seattle are in the upper quadrant despite their high rent increases, and cities like Detroit are in the lower quadrant even with their low rent increases.

FRED allows you to create all kinds of data agglomerations and exercises, so you can examine these and other influential factors, such as vacancy rates, opportunities for building, and income growth.

How these graphs were created:
First graph: Search for “CPI rent primary residence south” and select the series shown. From the “Edit Graph” panel, use the “Add Line” tab to search for and select the other series by replacing “south” with “west,” “northeast,” and “midwest.” Then add the rent CPI for the U.S. and the general CPI series. Change “Units” to “Index (Scale value to 100 for chosen date),” use “2001-01-01″ as the chosen date, and click “Apply to all.” In the “Format” tab, make the last two lines dashed. Adjust the date range to start on 2001-01-01. Second graph: Repeat the above, but for rents in Seattle, Boston, Houston and Detroit. Third graph: Repeat the above, but for populations of the same cities and the U.S. population.

Suggested by Reed Romanko and Christian Zimmermann.

How inflation helps the stock market set records

The news regularly reports that this or that stock market index has reached new heights. What does that really mean?

Economies tend to grow, whether it’s their population or their productivity, so it’s natural that their economic statistics would also increase. Prices generally increase as well, which means that even if an economy doesn’t grow, economic measures will increase. That is, if those measures aren’t cleared of general price inflation (“deflated”). Eventually, any stock index will also appear to increase over time. It will have ups and downs—sometimes big ones—but eventually it will set new records.

Let’s consider the example shown in the graph above, which is the Nikkei index for the Japanese stock market over the past 10 years. It seems to have been increasing and, in fact, setting quite a few new records along the way. But has it?

Our second graph shows 60 years of data for the same index. The dramatic run up in 1990 was clearly the record high for the Nikkei, which it has yet to match. But little by little, it’s getting closer to that level and eventually a new record will be set. On this graph, the Nikkei is 74% of the way there.

Our third graph has taken care of the general price inflation problem by dividing the Nikkei by the consumer price index for Japan. This price index pertains only to consumption and not to general output, but it’s the series that is long enough and close enough for our purposes here.

We see from the graph that the record high in 1990 is actually a longer way off: The Nikkei’s current level is really only 68% of the way there. The difference between 68% and 74% isn’t actually that large, thanks to low inflation in Japan. Had Japanese inflation been higher, we might have seen a much bigger difference. But look at the early decades in this graph and you’ll notice crashes that were hidden by inflation in the last graph. Inflation helped the Nikkei reach new records, but adjusting for inflation reveals when the index was actually decreasing.

How these graphs were created: Search FRED for “NIKKEI” and you have the first graph with the default 10 years of data. For the second graph, expand the sample period of the first graph to include all available years, either by clicking on “MAX” above the graph or by playing with the slider below the graph. For the third graph, use the “Edit Graph” panel to search for and add “Japan CPI” and apply formula a/b*100.
Suggested by Christian Zimmermann.

The jump in used car prices

Economic restrictions related to the COVID-19 pandemic are being loosened, and economic activity is beginning to pick up. That’s expected to generate temporary increases in consumer price inflation. Over the past few months, prices for energy commodities and services have increased. But the largest monthly change in the April 2021 CPI belonged to another sector: used cars and trucks.

The FRED graph above shows that year-over-year growth in used vehicle prices reached 21% in April 2021, up from an already elevated 9.4% in March 2021. This is especially remarkable given that the general increase in the price level as of April was 4.2%. Used vehicle prices haven’t increased this much since December 1981, when they measured 21% and general inflation was 8.9%. Prior to 2020, the last time used vehicle prices had a monthly increase of more than 10% was between September 2009 and 2010. So how did this come about?

Comparing Beige Books in 2020 and 2021

A look back at economic conditions a year ago can help shed some light. In the April 2020 Beige Book, compiled around the time the country initiated restrictions on economic activity, auto dealers reported “significantly lower used car prices and a greater tendency to sell new cars for less than their sticker price.” Rental car agencies, the largest seller of used vehicles, responded to the lack of demand for their services by offloading excess inventory of used vehicles, increasing the supply of used vehicles and putting downward pressure on their prices.

The April 2021 Beige Book, however, tells a very different story. With demand recovering, rental companies are building up their fleets again, leaving fewer options for other used vehicle buyers. Not only has consumer spending activity increased moderately, lack of new vehicle inventory has been a “major issue,” in part due to semiconductor shortages that have created supply chain issues for vehicle manufacturers. All this has pushed more consumers to consider purchasing used vehicles. In the past, a glut in the supply of new vehicles would be absorbed into the used vehicle market over time, keeping prices low with a steady supply of off-lease and trade-in vehicles.

Trends over time

This blog has discussed trends for vehicle sales in general, but let’s stick with used vehicle prices and add some historical context. Before the current recession, annual growth in used vehicle prices hadn’t hit 3% since May 2012 and remained largely flat during the period from 2013 to 2020. Indeed, this trend goes back well over two decades: As measured by the CPI, used vehicle prices were largely flat or falling going back to 1997.

So the current spike in prices feels more like a correction after a lengthy stretch of falling prices. A 21% annual rise in prices is extraordinary, but it came about due to a unique and unprecedented set of economic conditions now impacting the supply of vehicles. Looking at how and why it happened gives us a better understanding of where things stand.

How this graph was created: Search FRED for “CPI new cars” and click on the right series. From the “Edit Graph” panel, use the “Add Line” tab to search for and select “CPI used cars.” Select units “Percent change from year ago” and click on “Select for all.” Finally, restrict the sample to start in May 1996.

Suggested by Nathan Jefferson.

View on FRED, series used in this post: CUSR0000SETA01, CUSR0000SETA02


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