Homes under construction in Englewood Cliffs, New Jersey on November 19, 2024.
Adam Jeffrey | CNBC
if elected president Donald Trump If he wants to push inflation back to a more bearable level, he will need help with housing costs, an area where federal policymakers have limited influence.
November consumer price index report The news was mixed on housing, which accounts for a third of the closely watched inflation index.
On the one hand, the category posted its smallest full-year gain since February 2022. Additionally, two key rent-related components of the indicator posted their smallest monthly increases in more than three years.
But on the other hand, the annual growth rate is still 4.7%, excluding the COVID-19 period. This level was last seen in mid-1991, when CPI inflation was about 5%. According to the Bureau of Labor Statistics, housing contributes about 40% to the monthly increase in the price index, more than food costs.
With the consumer price index now inching up to an annual rate of 2.7% (3.3% when excluding food and energy), it’s unclear whether inflation will sustainably and convincingly return to the Fed’s 2% target, at least until housing inflation further Not before remission.
“As time goes on, we expect rent growth to start to slow on a year-over-year basis,” said Lisa Sturtevant, chief economist at Bright MLS, a Maryland-based listing service covering six states and Washington, D.C. It just feels like it takes a long time, though. “
Still rising, but not as fast
In fact, housing inflation has been moving lower slowly and unevenly since peaking in March 2023. Much like the overall Consumer Price Index (CPI), housing inflation continues to rise, but at a slower pace.
The housing problem is caused by a persistent cycle of supply exceeding demand, which began in the early days of the COVID-19 pandemic and has yet to be resolved. housing supply Home prices in November were about 17% below levels five years ago, according to Realtor.com.
Rent has been a particular focus for policymakers, and the news about it has been mixed.
The national average rent was $2,009 per month in October, down slightly from September but still 3.3% higher than a year ago, according to real estate market website Zillow. National rents have increased by about 30% in the past four years.
When it comes to housing, costs also continue to climb, exacerbated by high interest rates that the Fed is trying to lower.
Although the central bank has Reduce base borrowing rate Up three-quarters of a percentage point since September and expected to drop another quarter of a percentage point next week, the typical 30-year mortgage rate has actually risen by about as much as the Fed has cut rates over the same time frame same.
All of these factors pose potential threats to Trump, and some economists expect that other Trump policies, such as tax cuts and tariffs, will exacerbate inflation woes.
“We know that some of the initiatives that the president-elect has proposed are quite inflationary, so I think the prospects for continued progress toward the 2% target are less certain than they were six months ago,” Sturtevant said. “I don’t feel like I’m being influenced by any of this. “It specifically shows that the federal government can meaningfully address supply issues, certainly not in the short term.”
Currently optimistic
During his presidential campaign, Trump made deregulation a cornerstone of his economic platform, which could spread to the housing market by opening up federal land for construction and generally lowering barriers for homebuilders. Trump has also been a vocal proponent of lowering interest rates, even though monetary policy is largely outside his purview.
The Trump transition team did not respond to a request for comment.
Wall Street is generally optimistic about the housing situation.
“Rents may eventually normalize to levels consistent with 2% inflation,” Bank of America economist Stephen Junod said in a note. Economist Krushna Guha, head of central bank strategy at Evercore ISI, wrote that November’s The housing data “will be viewed by the Fed as encouraging.”
Still, housing costs “remain the No. 1 source of price increases, and the slowdown in increases is no comfort,” said Robert Frick, corporate economist at Navy Federal Credit Union.
That could spell trouble for Trump, who faces a potential “Catch-22” that would make easing housing burdens difficult to solve.
“We’re not going to lower housing costs until housing costs come down. But housing costs aren’t going to go down until housing costs come down,” Sturtevant said. “We know there are some unknowns that we may not have talked about two or three months ago.”
