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Inflation surges to 9.1% in June 2022: How this affects housing

by Brad Cartier, posted in Newsletter

Flávia Furlan Nunes of Housing Wire starts us off this week with reporting on the new inflation data, which surged to 9.1% in June, the highest rate in 40 years. The rise in inflation and interest rates have put a strong cooling effect on housing. Buyer demand is slowing and purchase volume is dropping despite a slight uptick in inventory.

According to Fan-Yu Kuo of the National Association of Home Builders (NAHB), “The index for shelter, which makes up more than 40% of the ‘core’ CPI, rose by 0.6% in June, the same increase as in May. The indexes for owners’ equivalent rent (OER) increased by 0.7% and rent of primary residence (RPR) increased by 0.8% over the month, the largest monthly increase since April 1986.”

Inflation data 2022 Q2 - NAHB

Source: NAHB (July 2022)

Where inflation is particularly pronounced is in rents. According to Matthew Boesler and Prashant Gopal of Bloomberg (subscription required), rents rose in June at the fastest pace since 1986, up 0.8% month-over-month and 5.8% year-over-year. Mark Zandi, chief economist of Moody’s Analytics, is quoted as saying “[t]he big increase in CPI rents is catch-up with the consistent double-digit growth in market rents…The good news is that market rents appear to be topping out, as renters are not able to afford the higher rents and are balking. More rental supply is also coming, although this will take a year or two to have a meaningful impact on market rents.”

Somesh Jha of the Los Angeles Times reports that because housing is the biggest contributor to core inflation and is lagging, whereas other sectors in the inflation bucket appear to be retreating, rents continue to rise and contributed to the significant inflation number for June 2022.

Housing and rising rates

All of the above inflation data suggests that the Federal Reserve will likely hike rates at its meeting next week, with some speculating it could even be as high as a full percentage point. That said, according to Yahoo! Finance, Goldman Sachs Chief Economist Jan Hatzius doesn’t believe it will be a full percentage increase, but 0.75%.

Myles Udland of Yahoo! Financediscusses interest rates, noting that the 30-year fixed mortgage rate is now at 5.3%, the highest level since 2009.

Interest rates increase - Yahoo

Source: Yahoo! Finance (July 2022)

Melissa Dittmann Tracey of Realtor Magazine reports that rates have since increased to an average of 5.51%. To compare, this time last year the 30-year rates averaged 2.88%. The National Association of Realtors (NAR) senior economist Nadia Evangelou had this to say about the news:

“With the potential of a more aggressive rate hike from the Federal Reserve at the end of the month, mortgage rates will likely rise even further…However, even with this increase, mortgage rates will continue to be historically low—below 8%—in 2022.”

Nick Timiraos of The Wall Street Journal (subscription required) wrote this week that “officials had signaled they were leaning toward a 0.75-point, or 75-basis-point, increase this month. After another scorching inflation report was released Wednesday, however, they indicated they would consider a full-point increase.” The downside to such large rate increases is that they can trigger a deeper recession. In a WSJ survey of economists, 49% believe we will enter a recession in the next 12 months.

Hot markets

Despite the overall cooling of the housing market, there are some markets that are showing further signs of growth. released its June Hottest Housing Markets Report, showing that Concord, NH took the top spot last month. These rankings are based on unique views per property and the number of days a listing has been active.

Rounding out the top markets following Concord were Manchester-Nashua, NH, Burlington-South Burlington, VT, Portland-South Portland, ME, and Burlington, NC. Further, of the largest U.S. metros, the top 3 most-improved markets were all in the Midwest: Cincinnati, OH (+108 spots), Indianapolis, IN (+66 spots), and Milwaukee, WI (+57 spots). Of note, the above data shows that there are no Western region markets on the hottest markets list for the first time on record.

Christine Stricker of ATTOM Data Solutions also discusses the markets with the largest annual price gains in Q2 2022, with New York County taking the top spot.

Top counties with highest median price growth - ATTOM

Source: ATTOM Data Solutions (July 2022)

Dana Anderson of Redfin discusses hot markets, noting that Boise, ID, which was once the hottest market in the country, saw 60% of home sellers dropping their listing price in June and the market continues to cool. This was followed by Denver (55.1%) and Salt Lake City (51.6%). According to Redfin Senior Economist Sheharyar Bokhari:

“Home sellers are contending with a rapidly changing market, especially in places where they’re used to their neighbor’s homes getting multiple offers and selling for more than asking price…Higher mortgage rates and a potential recession are causing prospective buyers in popular migration destinations to press the pause button, and they’re also having a big impact on workers in big job centers who rely on their stock portfolio for down payments. In places like Denver, Seattle and Portland, some buyers feel less confident about their finances in the face of a shaky economy and faltering stock market. Sellers are adjusting their expectations in real time as they realize they may not get the price their neighbor got two months ago.”

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