Chicago Real Estate Daily – Rents rise again in sizzling downtown apartment market
Downtown apartment rents hit another high in the first quarter, and more hikes may be in the offing amid a red-hot rental market. The average effective rent at top-tier, or Class A, downtown apartment buildings rose to $2.50 a square foot in the quarter, up 2.9 percent from the fourth quarter and 9.2 percent from a year earlier, according to Appraisal Research Counselors, a Chicago-based consulting firm. Landlords have been raising rents for more than two years as many people have steered clear of the depressed condominium market and decided to rent instead. Rents at the high end of the downtown market have risen 20.2 percent since bottoming out at the end of 2009; the average Class A apartment costs $2,148 a month today vs. $1,787 back then. The increases are likely to continue until next year, but a construction boom could end that in 2013, when developers add about 3,000 apartments to the downtown market. “Right now, it’s tight,” says Appraisal Research Vice president Ron DeVries. “But when we get into March, April, May of 2013, that’s when things are going to get interesting.”

Comment

Owners’ equivalent rent, or OER, is a measure of housing inflation used by the BLS.  They use a survey of rents in an econometric formula to determine housing inflation.  This measure has a 32% weight in the calculation of core CPI.

Rents of primary residence, or RPR, is a measure of renters’ inflation used by the BLS.  It uses the same survey of rents in a slightly different econometric formula to determine renters’ inflation.  This measure has a 8% weight in the calculation of core CPI.

Together OER and RPR are a major driver of core inflation. As the chart below shows, these measures have been moving up over the last several months.

As our colleague Howard Simons noted last month, the recent out-performance of apartment REITS suggests even higher OER in the future.  He concluded with:

As the relative REIT indicator is a market-derived measure, its signal of upward pressure on OER over the next three months is preferred to the CPI indicator indicating moderating OER pressure over the next nine months.

Source: Bianco Research

Category: Inflation, Real Estate, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Will Soaring Rents Lead To Higher Core Inflation?”

  1. BennyProfane says:

    Well, I guess so, if you live in downtown Chicago.

  2. davossherman@gmail.com says:

    Core inflation—who gives a shit?

    Can you back out gas and food from your budget?

    Inflation is 10%. Bernanke is a moron.

  3. VennData says:

    Davissherman@gmail has a PhD in economics…. oh… no!? … it’s that simple downhome, Sarah Palin-like thinkin’ that knows in his entrails that he has be living under 10% inflation year-in-year-out, yup, prices have doubled for him in five years. Yup…
    Let the dumb people estimate the inflation rate and Congress should FORCE the Fed to act accordingly. That is the scientific GOP way,
    Oh, and they want inflation so bad, because their egos have been crushed since they were wrong about it, wrong about the stock market for three years, wrong about Obama destroying America. The simpleton party, for simpleton people. Go GOP!

  4. Futuredome says:

    Dave wants a deflationary spiral so he can destroy the United States and instead, give all political power to capital owners.

    Sounds like international slave states to me.

  5. ricecake says:

    It’s just very simply math and common sense.

    Say you’re single luck working full time living in an average neighborhood and making $2500 month after tax.

    Here’s your expenes:

    Rent – $1500 rent now (was $1250).

    Gas – $160 Monthly ( was $120 and less before. In Los Angeles area, cheapest gas is $4.40 galon.)

    Food – $ 500 monthly ( was $400 less. and not including eating out but shop @ Ralph price )

    Healthcare/ Dental care – $ 150

    D.W. P – $70

    Phone internet, cable etc – $ 150

    All the above already exceeded your income of $2500. You won’t have any money left to go to movies or buy other things you need. And you are still loaded up with student debt or car loan that are needed to be pay off.

    The rent says that you can never afford to live in a decent apartment by yourself. You will need a roommate to share at least half the rent in order to make ends meet. Or have a boyfriend or girl friend to live with you to share the expenses burden.

    The Greek are not alone. You will have to apply austerity to yourself: cut food bill to half, cut phone internet down to just cover the basics. Forget about the fancy iPhone and other toys like that. Reduce driving cost cut down gas bill to half. cut down healthcare/dental care.

    hard time and hard time to be the young ones unless your parent(s) are really rich and want to help you.

  6. theexpertisin says:

    It has been my experience that rent increases over a broad geographical swatch of the country is predictive of inflation.

    That stated, the Feds view of inflation is bull shit. I have raised my rents modestly, and am 100% occupied. Most tenants, including business tenants are long term (over three years). Even the Section 8 ones.Many newbie landlords and big box multi-family landlords are impersonal and unreliable upkeep partners. There is no substitute for customer service, which also keeps malicious/preventable repairs to a bare minimum.

    It also helps being on excellent “terms” with local politicians. Chicago was a great place to observe how things worked during my formative years.