As we discussed two weeks ago, rents are skyrocketing across the country. Abha Bhattarai at The Washington Post highlighted just how much rent has shot up this past year…
- “Average rents rose 14 percent last year, to $1,877 a month, with cities like Austin, New York and Miami notching increases of as much as 40 percent, according to real estate firm Redfin.”
Making matters worse most Americans expect rents will rise another 10% this year according to a report from the Federal Reserve Bank of New York.
Rising rents has an oversized impact on inflation. In fact, rent of shelter is weighted to make up 32% of the government’s official indexes of consumer prices. Herein lies the problem for central bankers to control inflation. Normally, when inflation is running rampant the central bank raises rates to slow the economy down. However, that could backfire in this current environment according to Matthew Boesler at Bloomberg…
- The trend may add to the impetus at the Federal Reserve for higher interest rates, though here the inflation cure could backfire. The reason: Rising mortgage costs could prevent some renters from becoming homeowners, putting additional pressure on the market.
This, of course, doesn’t mean the Fed shouldn’t raise rates, they absolutely should. However, it is another protentional problem that the Fed is going to have to take into account as the decide how many rate hikes they are going to implement this year.