Inflation is more stubborn than expected this year. One reason is rising rents

LEILA FADEL, HOST:

Inflation is proving more stubborn than expected so far this year.

A MARTÍNEZ, HOST:

Yeah, one reason is rising rents. The high cost of housing was one of the biggest drivers of inflation last month, but real estate experts say those official government figures are somewhat inflated.

FADEL: NPR chief economics correspondent Scott Horsley joins us now to explain. Hi, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Leila.

FADEL: Good morning. So the government's inflation tally shows housing costs jumped by almost 6% over the last 12 months. But I gather you're hearing a somewhat different story?

HORSLEY: That's right. If you look at what's happening right now in the rental housing market, rents are not going up that fast. The real estate company Redfin says the average rent across the country in March was just under $2,000. That's up less than 1% from a year ago. Now, of course, there's lots of regional variation. Daryl Fairweather, who's chief economist at Redfin, says the cost of keeping a roof over your head depends a lot on where you live.

DARYL FAIRWEATHER: The South is a place where a lot of people moved in during the pandemic. Think Austin, for example. But then there was a construction boom because in the South it's pretty easy to build. But in the Midwest it's been more slow and steady.

FADEL: So it's the old adage - location, location, location.

HORSLEY: That's right. Sunbelt city saw a big rent increase a couple of years ago. Now, thanks to the resulting building boom, rents are leveling off or even coming down a bit in that area. In the Midwest where there's been less construction, rents are still climbing. They're up about 5% over the last year. But even with that increase, rents in the Midwest are still some of the most affordable in the country, averaging a little under $1,500 a month.

Now, it's harder for the government to measure these changes in housing costs than, say, the cost of hamburger. For hamburger, you just go to the supermarket, you see what it sells for. With annual leases and so forth, housing costs don't change minute by minute or even month by month. There's sort of a lag. Over time, the official inflation data should start to reflect this slowdown in national rent increases, even though housing costs will be higher than they were before the pandemic.

FADEL: What's keeping housing prices high?

HORSLEY: Fundamentally, we haven't built enough of it. The boom in apartment construction over the last couple of years is helping. But now that rents are going up more slowly, that boom may not last. Construction figures out this week show that builders broke ground on about 40% fewer new apartments in March than they did last year at this time. We've also got lots of demand. There's a big population of people in their 20s and early 30s right now who are in their prime renting years. And a lot of people might have to keep renting longer because with these high mortgage rates, it's very expensive to buy a home right now.

FADEL: Speaking of homebuyers, what's happening with mortgage rates?

HORSLEY: They're still inching up, and that's keeping a wet blanket on the overall housing market. There had been some hope interest rates would come down a bit in time for the spring and summer homebuying season.

FADEL: Yeah.

HORSLEY: But just this week, Federal Reserve Chairman Jerome Powell said he and his colleagues may have to keep rates higher for longer in order to be confident that inflation is under control.

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JEROME POWELL: The recent data have clearly not given us greater confidence and instead indicate that it's likely to take longer than expected to achieve that confidence.

HORSLEY: Right now, financial markets are betting it will be early fall before the central bank is ready to start cutting interest rates.

FADEL: NPR's Scott Horsley. Thank you, Scott.

HORSLEY: You're welcome.

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