Soaring U.S. Rents Are the Sticky Inflation With Staying Power

The cost of renting a home is soaring in cities across the U.S., squeezing the finances of low-income households and posing a threat to the consensus that pandemic inflation will soon fade away.

The median national rent climbed 9.2% in the first half of 2021, according to Apartment List. While part of the increase reflects a bounce-back in prices that dropped earlier in the pandemic, the real-estate firm says rents are now higher than if they had stayed on their pre-Covid track.

And they’re still rising at a rapid clip -- just at the time of year when the largest number of lease renewals fall due, locking millions of tenants into bigger monthly bills. Surveys by the New York Fed and Fannie Mae suggest renters are braced for further hikes of 7% to 10% in the coming year.

Higher rents are the kind of price increase that’s hard to reverse -– unlike many of the ones that have accompanied the economy’s reopening, from lumber to used cars.

That means a sustained run-up in rents could represent a bigger challenge to the Federal Reserve’s view –- shared by most investors –- that the current spike in inflation will prove transitory.

‘Stickier Trend’

“It’s a stickier trend that I think we’re seeing in other components right now,” said Sarah House, an economist at Wells Fargo & Co. “When you’re signing a lease, on average, it’s probably for a year or so.”

Another effect of rental inflation is to widen inequalities in the housing market that play into wider gaps in income and wealth. The pandemic recovery has been labeled “K-shaped” by some analysts because its benefits skewed toward the rich.

House prices jumped the most in more than 30 years in the 12 months through April. The 15% gain in the benchmark Case-Shiller index over that period “would translate into a wealth gain of $45,000 for a typical homeowner,” said Lawrence Yun, chief economist at the National Association of Realtors.