Chair

<p>In the ongoing battle against inflation, a new contender has emerged from the shadows, and it’s not what you might expect. The <a href="https://www.cryptopolitan.com/white-house-so-optimistic-about-us-economy/" data-type="post" data-id="424592" rel="noopener noreferrer nofollow">U.S.</a> housing market, long a source of financial aspiration and anguish for many, is now stepping into the ring to take on inflation. In a twist that might have economists and home buyers alike scratching their heads, the housing market could be the unexpected hero in the fight to bring inflation down.<a href="https://archive.ph/XPPS7#selection-4509.0-4516.0" rel="noopener noreferrer nofollow" target="_blank"> </a></p>
<h2 class="wp-block-heading" id="the-shelter-showdown">The shelter showdown</h2>
<p>The narrative unfolding in the U.S. housing sector is nothing short of a drama. With consumer prices having risen 3.1% in November from last year, the economy’s heavyweight, shelter, has been throwing its weight around with a 6.5% rise. This increase in shelter costs, which accounts for a staggering 35% of the Consumer Price Index (CPI), is the main adversary in this inflationary saga. Strip away shelter, and inflation would have been a mere 1.4%. It’s like discovering the villain in a mystery novel was hiding in plain sight all along.</p>
<p>However, the plot thickens when considering the CPI’s composition. The Federal Reserve, which keeps a keen eye on a different measure, the personal-consumption expenditures index, has seen inflation running somewhat below the CPI. So, what’s the big deal with shelter? It’s not just about housing prices, which rose 3.4% in October from a year earlier, but more about rents, which have been slowing down to a 3.3% growth. This slowdown in rent growth, though, takes time to reflect in the CPI due to the way tenant rents are surveyed and calculated, which includes a mix of new and existing leases.</p>
<h2 class="wp-block-heading" id="housing-market-the-inflation-tamer">Housing market: The inflation tamer</h2>
<p>The unique way in which the U.S. Bureau of Labor Statistics (BLS) calculates housing costs in the CPI adds another layer of intrigue. For owner-occupied housing, which makes up 25.8% of the CPI, the BLS uses a hypothetical measure known as owner-equivalent rent. This calculation is based on what homeowners would pay to rent their houses, influenced more by rents on single-family homes than apartments. This method doesn’t consider actual home prices, viewing a home as both a long-term investment and a consumer good.</p>
<p>What does all this mean for inflation? Well, as goods prices stabilize, cooling rents are expected to apply downward pressure on inflation in the coming year. Alan Detmeister, an economist at UBS, projects that the shelter component of CPI inflation will fall to 3.75% by the end of 2024. This anticipated decline in shelter inflation could be the knockout punch needed to bring overall inflation closer to the Federal Reserve’s target.</p>
<p>Moreover, this development has caught the attention of the Federal Reserve, which hinted at possible rate cuts next year. The influence of housing on inflation was highlighted by Fed Chair Jerome Powell, noting the sector’s stabilization at levels well below those of a year ago.</p>
<p>But this story isn’t just about numbers and percentages. It’s about real people and their lives. The housing market’s role in the inflation narrative affects everyone, from those looking to buy their first home to retirees planning their future. The national boom in multifamily housing supply and the demographic pressures of home demand from Gen Z and millennials will continue to shape the housing landscape. The single-family rental market, often a necessity rather than a choice, highlights the ongoing demand for housing inventory.</p>
<p>In essence, the U.S. housing market, often seen as a barometer of economic health, is now playing a pivotal role in the inflation battle. Its influence on the CPI and the broader economy is a testament to the interconnectedness of various economic factors. As we watch this drama unfold, the housing market could very well be the unsung hero in taming inflation, a challenge that has perplexed economists and policymakers alike.</p>

Inflation has a new challenger – and it is the U.S. housing market

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