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Is inflation peaking?

by Brad Cartier, posted in Newsletter

Rents have been rising quickly over the past few years. According to, average rents have increased over 25% across the board year-over-year. With inflation continuing to increase, the upward trend may continue.

According to Stessa: “No segment of the rental market has been spared the cost of rising rents, from singles or couples in a studio or one-bedroom unit to families renting a three- or four-bedroom home. According to data from the U.S. Department of Housing and Urban Development, units of all sizes saw price increases of greater than 10% for the median unit between 2019 and 2022.”

Avg rents are increasing - Stessa

Source: Stessa (accessed May 17, 2022)

In their latest Multifamily National Rent Report, Yardi Matrix outlines that “Weakening U.S. economic growth has not stopped multifamily rents in their upward climb, as average asking rents rose $15 in April to an all-time high. The rate of growth remains elevated due to strong demand and a long-term shortage of housing that analysts estimate is between 2 million and 5 million units.”

National average rents - Yardi

Source: Yardi Matrix (May 2022)

According to the report, we will see some moderation in rent growth, however, given the supply and demand imbalance, it will take years before we reach an equilibrium.

Lynn Pollack of reports on the above report, noting that Yardi analysts expect the ongoing economic slowdown, inflation, and supply chain issues will all serve as moderating factors for surging rent prices in the coming year.

Returning to Stessa, the major cities with the largest rent increases between 2019 and 2022 include:

  1. Sacramento-Roseville-Folsom, CA (25.3%)
  2. Las Vegas-Henderson-Paradise, NV (24.8%)
  3. Salt Lake City, UT (24.6%)
  4. Phoenix-Mesa-Chandler, AZ (22.3%)
  5. Jacksonville, FL (22%)

Further, the smaller metros with the largest increases include:

Small Cities with Largest Rent increases - Stessa

Source: Stessa (accessed May 17, 2022)

In their May 2022 National Rent Report, Apartment List notes “After a brief seasonal reprieve, rents are back on the rise, with a 0.9 percent increase in April. Although rent growth has cooled from last summer’s peak, it continues to exceed pre-pandemic trends. While the apartment market has shown some signs of easing, our vacancy index dipped slightly to 4.6 percent this month, well below the 6 percent pre-pandemic norm. As we enter the spring and summer months, rental activity is likely to pick up, and rent growth is likely to accelerate.”


Contributing to the rapid rise in rents is inflation. New data shows that the inflation growth pace has slowed slightly, but we are still seeing record price increases not seen in 40 years. According to Rachel Siegel of the Washington Post, consumer prices rose 8.3% in April year-over-year, a slight drop from 8.5% in March.

Inflation continues to rise - WaPo

Source: Washington Post (May 2022)

Inflation is one of the biggest strains on the economy and is the primary driver of rising borrowing costs, making it more expensive for investors to acquire assets using debt.

Jeanna Smialek of The New York Times reports that the likelihood of further interest rate hikes increased due to high inflation data, despite a slight moderation. “Economists do expect price increases to continue to ebb somewhat this year, because they think that consumer demand will taper off and that supply chain stresses will ease. The crucial question is how much and how quickly that moderation might happen.”

Michelle Fox of CNBC puts this data into real terms for homeowners, reporting that the current inflationary environment is costing U.S. households an additional $341 a month.

According to the National Association of Home Builders (NAHB), these economic trends will have an ongoing impact on the housing market. “Higher inflation in housing is due to a lack of rental and for-sale inventory and cost growth for building materials, lots and labor. Higher interest rates will not produce more lumber. A smaller balance sheet will not increase the production of appliances and materials. In short, while the Fed can cool the demand-side of the economy, additional output on the supply-side is required in order to tame the growth in costs that we see in housing and other sectors of the economy. And efficient regulatory policy in particular can help achieve this goal and fight inflation.”

Construction costs

Supply chain issues continue to hurt the world economy and are a major contributor to rising inflation. According to new data from NAHB, building material prices have increased a dramatic 19% year-over-year. Further, the same index shows that since the beginning of the pandemic prices have risen 35.6%. It’s no wonder then why housing prices and rents continue to increase to record levels.

Residential construction prices rise 19 - NAHB

Source: NAHB (May 2022)

That said, in another report from NAHB, building permits are on the rise, meaning that there could be some supply reprieve on the horizon. “In 2021, according to the U.S. Census Bureau, builders applied for 1.1 million single-family permits, which is 13.9% higher than the 2020 level of 979,360. At the state level, Texas (179,620) issued the highest number of single-family permits in 2021 followed by Florida (148,735) and North Carolina (68,636). The top 10 states issuing the highest number of single-family permits combined accounted for 62.6% of the total single-family permits issued in 2021.”

Fitch Ratings reports that U.S. homebuilders are in for short-term pain as rising interest rates hurt home affordability for consumers. They predict that home sales will decline to low-to-mid-single-digit rates in 2022, and see a further mid-single-digit decline in 2023. They also expect housing price deceleration in 2023.

In commenting on the current situation, the CEO of construction supplier Builders FirstSource Dave Flitman was quoted in The Real Deal that demand and underbuilding will prop up the construction industry in the coming years. “I believe the industry will continue to grow…There may be some short-term pressure that may slow things for a bit. But I don’t see anything close to a major downturn.”

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