An inflation storm is coming for the U.S. housing market - MarketWatch

Fast-rising housing costs have helped to push inflation to a 13-year high.

Housing costs rose by 0.4% between April and May, according to the latest edition of the monthly consumer price index released Thursday by the Bureau of Labor Statistics.

Altogether, the rise in housing prices accounted for over a quarter of the overall increase in inflation in May, a reflection of how heavily government economists weight this spending category.

The latest edition of the consumer price index indicated housing prices have risen 2.2% over the past year, while other reports suggest home prices are up more than 13%.

The most recent report from the Case-Shiller Home Price Index for March showed that home prices were up more than 13%, the largest rate of growth since 2005.

Firstly, housing units themselves are not included the CPI market basket.

Home prices can rise both because the actual structure itself may be worth more — thanks to the rising cost of labor and lumber — but also because people see value in it as a capital investment.

As a result, there can be a mismatch in the way economists or government statistician view rising home prices, and what that means to a consumer.

“In a market environment where prices are rising so quickly to buy a home the economist would say that’s the increase in the price of the capital good,” said Robert Dietz, chief economist at the National Association of Home Builders.

Americans need to know how much housing costs are rising or falling — not the least of which because residential real-estate makes up such a huge portion of the nation’s economy.

But Americans do need to know how much housing costs are rising or falling — not the least of which because residential real-estate makes up such a huge portion of the nation’s economy.

The government’s Consumer Price Index calculates the “imputed rent” — essentially the amount a homeowner is paying for their housing rather than paying a landlord.

He added that rising housing prices has “exceeded inflation in some circumstances.”.

Some researchers have argued, however, that this approach can also understate and/or be slow to identify true inflation occurring in the housing market.

showed that there is typically a lag between when home prices are actually rising, and when that price growth is reflected in inflation reports like the consumer price index.

The shifts in housing preferences and needs caused by the COVID-19 pandemic has also complicated our ability to gauge the effect of inflation in the housing market.

Those effects are beginning to dissipate, but will continue to weigh on official measures like the consumer price index given the time lags that occur

For a period of time between 2018 and the beginning of 2020, the Real House Price Index was falling, because Americans’ buying power was rising faster than home prices, Fleming said

“Deflation has turned into inflation, not because interest rates have gone up — they’ve only gone up a little bit — but because house prices are just crazy,” Fleming said

The reason home prices are rising so fast is fairly simple

‘Deflation has turned into inflation, not because interest rates have gone up — they’ve only gone up a little bit — but because house prices are just crazy.’

Another factor: Zoning regulations across the country prevent the construction of more dense housing in many cities, effectively driving up home prices and rents in the process

Over time, that increased concentration in the bottom-tier of the housing market is driving up prices for those who can least afford it