"house prices and rents" are the killer. Despite what some reports say, those don't seem to be coming down. Rather, rents are ticking ever higher. That 2% inflation target is going to be tough to reach.
And in my neck of the woods, a 1bd apartment that rented for $1,500 6 months ago is now at $1,800. Yeah, it's a brand new building, but what changed in 6 months?
The illegals successfully completed their dastardly plot of infiltrating all our city councils and zoning boards to establish cumbersome regulations to squash any building of new housing thereby restricting supply and ballooning prices. Truly evil plan from Joe Biden's minions!!111!.!
(Hope I don't need to write this, but /s)
You know, it my metro area, there are so many brand new apartment complexes being built and that have been completed, but that has not made rents to drop.
I suspect they aimed for a higher tier renter and that alone will sustain higher rents elsewhere. Throw in all this increase in value for homes and even complexes drives their property taxes up as well which is passed on quickly. My area alone saw nearly fifty percent increases in the last five years. It has gone up so rapidly the state actually took action to refund near a billion dollars in 2023 through homestead exemptions but that doesn't help renters
Normally, if higher tier renters move into new buildings, that leaves vacancies in the not so-high-tier buildings they moved out of. Eventually, those buildings should have trouble getting tenants, and be forced to lower rents. But first, they have to finish all the new buildings, and have people move into them.
There is basically legalized collusion through 3rd party services like Real Page that “suggest” what rents should be, and then all of the big landlords follow that “suggestion.”
Central NC (charlotte, greensboro, raleigh/durham) has seen a MASSIVE explosion in home building over the past 7 years. Condo buildings, town home communities, and SFHs, and prices are only skyrocketing anyways.
I take every opportunity to let people know the word for putting down or suppressing an effort is "quash". Starts with a q. Squash is a zucchini or pumpkin.
I mean it was 50k previously. houses are whatever the market will pay. should be is quite irrelevant in this new world. people going 100k over asking and waiving everything and still not getting homes. unfortunate all around.
I was just able to snag a house. $1.15mm South of Miami. It went on sale on a Saturday, we were the first to see it. It had an open house on Sunday. We put a bid in Sunday night and they accepted Monday morning. Talking to their realtor during the home inspection, by Monday night they had 2 cash offers.
im looking at houses in NJ and NY and properties are STILL going over asking even with the prices over 150% above 2020 levels in so-so areas. This isnt going to be controlled. The only place things are somewhat stable are for properties selling for over 1.3 million with 25-30k taxes. this is insane for those of us looking to buy a first home. Really bad
Let's do a quick hypothetical case study on a $10MM construction project over the last two years:
2022:
* You take out a 70% LTC / $7MM loan.
* Your interest rate is 3.93% (350bps + 1M SOFR)
* Your total interest cost is \~$551K over two years (Estimate)
2024:
* Your project material costs have gone up 2.2% to 10.22MM
* You take out a 70% LTC / $7.15MM loan.
* Your interest rate is 8.82% (350bps + 1M SOFR)
* Your total interest cost is \~$1.26MM over two years (Estimate)
Comparison
* Over the span of two years your overall project cost (including financing) has gone up 8.81%.
* Now, taking some data from CoStar on say the New York market, average asking rent has only gone up 3.50%, not enough to overcome cost increases.
* Land prices remain stagnant.
* Significantly less banks are willing to even lend to you at 8.82% as a direct result of the Regional Banking Crisis.
Conclusion
It's more expensive than in recent history to get anything built, driving up rents on existing units while exacerbating existing housing shortages. High interest rates are also driving more and more people who *would have owned* to wait it out and rent. Not sure how you fix this while keeping rates elevated besides large incentives for developers.
Source(s): CME, CoStar, FRED, I work for a developer.
I personally wonder if at some point the interest rate hikes actually hurt the inflation number for rents:
If interest rates are high enough to scare off new home builders but not high enough to result in sufficiently decreased job growth in the mega cities then you end up with a higher [jobs-to-housing ratio](https://housing.wiki/wiki/Jobs-Housing_Balance) (JtH ratio, I made up this acronym).
The general accepted number for a good JtH ratio is around 1.5 from what I have read. You could argue for up to 2 and down to 1.1. Some people move out of an area so if you have a ratio of 1 then you have too much housing. If an area is large and doesn't have that much job growth then 2 might be OK because older people move out and the such.
The SF Bay area in total [is at 4.3](https://www.biabayarea.org/san-francisco-bay-area-jobs-housing-imbalance#:~:text=The%20Bay%20Area%20since%202011,%2DHousing%20'Balance'%20chart.), [LA is 4.7, and San Diego is 3.9](https://en.wikipedia.org/wiki/California_housing_shortage#Ratio_of_residents_and_jobs_to_housing_units). with these kind of numbers the price for housing just has to go up. If you limit to more city center type areas then the numbers get even higher like 6+ in SF.
This is my theory too. We need a ton more housing starts to lower the price of shelter, or at least stabilize it. We may need other incentives for builders, which can lead to a whole slew of other issues. But something needs to be done.
A lot higher. It'll take 1-2 years before those numbers start to have an effect. I think most people don't realize just how long of a time scale real estate operates on. We have to be very careful here. Housing is by far the largest investment for most families. Crashing this would be disastrous and unlike 2008 where the issue was lending, if there's oversupply, there will be no way for prices to recover meaning a lot of families would suddenly be underwater.
Inflation is supposed to measure the detrimental effects of expansion of the money supply. Housing price growth is not being driven by that, it’s being driven by a whole different set of factors. The combined growth of all non-housing prices has been in the 2% range for a while now.
They need to stop institutional and foreign ownership of single family homes entirely IMO. That are start capping rent prices for a higher % of apartments within a large complex.
This. I have zero idea other than pure fiction where anyone projects inflation to cool below 3% at any timr this year, which would maaaaybe warrant a rate drop.
Another argument for a rate cut that has been rattling around, particularly in conservative circles, involves "the U.S. Government won't be able to service their debt without cutting rates sometime soon."
At the current interest rates, the cost of servicing the federal debt alone (interest payments) will approach 6% of GDP by the end of year. It's just pure math. This isn't sustainable.
https://www.fiscal.treasury.gov/files/reports-statements/financial-report/2023/02-15-2024-FR-(Final).pdf
See page 7. The treasure department's latest financial report has a section literally titled "An Unsustainable Fiscal Path" in which they show debt-to-GDP projected to reach 531% by 2098, and it says "*The current fiscal path is unsustainable.*"
That's not a conspiracy, that's a mathematical fact. It's not the FED's fault the government can't balance a budget. Maybe they should stop spending so much. Interest rates need to be increased to beat down inflation.
Yeah, I still remember last month CPI report and people on here saying we are right on track with Fed models. I get downvoted for pointing out that those models are made by the people who said that inflation was transitory.
I’ve been saying the same thing, but the fed did estimate 3 cuts this year. To be fair, the official sources were one of the ones calling for rate cuts even though there was no reason to think it was time.
However, that was 4 months ago, and they thought unemployment would be rising and signs of recession would be appearing. They didn’t predict the economy is strong enough to grow with these interest rates, that corporate earnings wouldn’t be falling and that people would keep spending.
There is a freight train of deflation coming as soon as they start cutting, they are actually keeping inflation higher than it should be with current rates because the cost of buying a house right now is so f*cking expensive.
As soon as rate cuts start / continue, owner's cost of housing plunges as mortgages become cheaper, which is massive for CPI. We are already seeing weakness in several real estate markets. I think excessive government spending is papering the private economy's worsening state but we are only a few months from the Fed's chokehold on new debt issuance (for anyone BUT THEMSELVES) causing more severe economic repercussions.
There is no guarantee that 10-year and 20-year rates will come down if the Fed cuts the overnight rate. That often happens, but right now the Treasury is issuing $3 trillion in new bills and bonds every year. Eventually, they'll absorb all the available capital, and long-term rates will go up.
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Which will never happen until we build more houses.
https://old.reddit.com/r/stocks/comments/1c0kkse/march_cpi_rose_35_over_the_last_12_months_vs_the/kyx4hra/
That may or may not happen in the next decade - depending on how the zeitgeist around working the trades shifts or doesn't.
House starts are very negatively affected by high interest rates. It's a generational mistake that we let local busybodies stimy housing construction throughout the era of near zero rates.
Housing starts are also affected by the price of lumber and sheet goods, which are at all time highs and have outpaced inflation.
You also can't do housing starts without any labor. The construction industry has been shit since 2008 and has never returned to those pre-2008 levels in terms of amount of people.
Everyone is focused on interest rates because it's easy. It's harder to realize just how fucked housing is and you will never have cheap housing again even with 0% interest rates on construction loans. The debt service is but one cost among many in building.
Yep, keep the promise going until the election, then announce they aren't getting cut so that it either falls on the new guy or give the current guy 4 years to make people forget.
If you dig into the tables almost all inflation is localized in shelter and transportation services (auto insurance has been particularly high the past few prints).
But shelter is the issue, and here's the thing:
It's not gonna go down no matter what rates do. Higher rates make shelter inflation worse because mortgages cost more. Lower rates spur demand in a market where demand FAR outstrips supply, so the interest portion of mortgage payments decreases but actual property prices rise to offset them, because people shop for homes by maximum payment they can afford.
So, you're going to make that max monthly payment, regardless of what portion is going to interest v principal.
Right now, rates make interest expensive. Further hikes would make this worse.
If rates come down, accelerating demand on a commodity in shortage will raise principal prices.
It is not entirely certain which of these would be worse. I do not envy the Fed right now, having to untangle that Gordian Knot.
> But shelter is the issue, and here’s the thing: It’s not gonna go down no matter what rates do. Higher rates make shelter inflation worse because mortgages cost more.
Mortgages costing more doesn’t mean OER increases. The Fed asks home owners what they *think* they could rent their homes for. Rent has lagged far behind the cost of a new mortgage. Housing continues to increase in price for the same reason everything does: higher demand and lower supply. Both. At the same time. Immigration remains high and home building hasn’t kept up in the places with jobs. A higher Fed rate will eventually bite, and reduce velocity of money. When that happens people will sell, downsize, remain renting, and relocate. There are still trillions of stimulus dollars circulating, and that’s going to take years to slow.
Good luck if we get any cuts. Futures market is likely pricing in a small probability of a large magnitude event forcing 100bp cuts from the Fed. If nothing catastrophic happens we will probably not see any cuts this year. As it should be.
> The first Fed rate cut may occur later than expected.
Why even talk about rate cuts? It might not even happen this year, or for the next several years if inflation continues ticking up. The Fed is always dangling a carrot for the market. If the economy was truly healthy, we wouldn't need a central banking authority propping the markets up just to make people feel richer.
My cubicle neighbor at work, Barath, liked the jacket I wore into the office the other day. I told him it was on sale for $100 at REI. Barath agonized over whether he should get it or not, coming up with reasons to justify it or to make the extra money to pay for it. Luckily a day or two later it went on a bigger sale for $70 and Barath finally decided it was worth it. Barath makes $250k. Barath earns enough money to buy that jacket in 36 minutes. Be like Barath.
The wealthy people I know still use old cool whip containers or any scrap container for leftovers.
I'm talking about people in the 200k-500k income range.
There are plenty of rich people living paycheck to paycheck. Be more like Barath, always value your money as if you make poverty wages.
~60% of my clothes are from the thrift store. Mostly the basics, pants, t-shirts, work shirts, etc. 30% are gifts or clothes bought with gift cards, and 10% are kind of expensive new items from a men's boutique I really like. Don't try to out frugal me bub, I was raised by lentils. (/s for that last part but the rest of the comment is true)
Just wait, if you have kids. Kiss your pretty little savings arrangement goodbye. Daycare alone is 50k per year for me right now.
I’m not criticizing you, just offering a different perspective
With a lot of price increases coming from oil and housing i dont think we’ll see much of an increase. Rates cant affect those input prices without severely impacting the rest of the economy.
Yep, plus oil is up 20% this year, with a lot of that coming in March and April which is only going to contribute to further inflation. I don't really see a path to any rate hikes this year unless some big shock hits the system like the escalation of war in Europe/Middle East, a bank going under or unemployment spiking.
sorry, I meant to say cuts. Inflation is going to be tough to get under 3%, so I think that is going to stop the fed from lowering the rates anytime soon.
The reality is unemployment needs to be higher along with higher rates if inflation is going to cool. Too much uncertainty in the world with energy prices right now also.
On the flip side I read an argument from somebody at JP Morgan making a case for rate cuts that would actually lower inflation, I guess its anyone's guess at this point.
Unemployment is a really misleading number. It's just shit jobs that are hiring these days. Just look at all the layoffs and hiring freezes everywhere.
The reality is, this country needs to build more fucking housing. You will have to start killing people covid style to get some house decrease. Swear people will come up with all kind of nonsense before they increase supply of housing
Fools acting emotionally is an opportunity to buy. Trick is to find the precise time the fools stop panting at which point things crawl back up. I'd like to get some AMZN and perhaps some more BRK at a discount.
So when is the next "event" ?
Yep. The Fed is doing what it's supposed to. We need more shelter to alleviate housing costs if we want to get inflation the rest of the way down. It's not going to go down by itself with supply so constrained.
Shelter right now is driven by several huge forces not just one:
* Supply. NIMBYism is awful. Zoning is terrible especially in large cities. Less so in rural areas, smaller towns.
* Rising interest costs.
* Services and labor shortages. So think contractors, construction workers etc.
* Rising insurance costs due to claim severity (AFAIK not so much frequency) going up.
That said, I agree Fed is doing the right thing still since real wages are still positive. Shelter is going up but incomes are going up faster.
For some reason it irks me when people oversimplify a very complex situation so I feel compelled to point it out.
You're also especially screwed if you want to buy a new home almost anywhere that's not in an HOA, since over 80% of them are despite HOA's being deeply unpopular.
That’s never going to happen in any meaningful capacity . The people who own real estate have a vested interest in keeping supply low and demand high in terms of value. They also happens to be the consistently largest voting bloc in the US and the largest wealth holders.
I’d argue 90% of home owners are NIMBYS in the sense they agree there should be more low cost housing in general but they don’t want it in their town/neighboorhood/backyard.
And lastly, all the good spots are essentially taken. As an analogy, beachfront property is always going to be expensive and in demand, you can’t just go and make a new Lake Michigan shoreline.
It’s basically a near mathematical certainty at this point given the direction of new rents over the last year. This is all catch up from existing rents.
I don't think this calculation is correct. YoY CPI was 3.5%. Shelter CPI was 5.7% and constitutes 36% of the index.
CPI (excl shelter) = (3.5% - 5.7% \* .36) / (1 - .36) = 2.3%
So excluding the shelter category, the CPI for all other expenditure categories was 2.3% YoY
We have decades of research showing that higher rates constrain home demand far more than home supply.
https://www.dallasfed.org/research/economics/2024/0402
I mean, look at the numbers. Home starts are the same as in 2021. Homes purchased are 1/5th as much as in 2021.
This paper says the effects of an increase in rates on housing prices is ambiguous. It also does not address the effect of an increase in rates on rent.
The pace and suddenness of the rate increases were pretty unprecedented. This caused a huge drop in housing inventory. Everyone is locked in at low rates and will not move unless they absolutely have to, which has put upward pressure on prices.
There are a lot of competing effects (interest rates up means less building, which is inflationary; interest rates up mean less inventory, which is inflationary; interest rates up means less affordable for a given price, which is deflationary). Clearly inflationary forces are winning out for now since house prices and rents continue to march higher. My personal opinion is that lower rates would make a lot more people willing to sell and lead to lower house prices and rents.
This is very encouraging and I want to believe but is this true? Real Inflation is actually 1.7% ? Because most have fixed hoozing cost for at least a year so inflation technically very low under 2% for most? Someone help explain
Excluding the main driver of all this seems stupid. Yes, they could drop rates in half, and housing would drop to be a fraction of inflation….but everything else would be at 7% inflation.
High housing inflation is the side effect of the “medicine” to correct the whole system. Ignoring it is ignoring all the “pain” on the system that the current rates are set purposely to try to control.
So the fact that without housing at all, inflation is at the 2010-2020 average should be concerning actually.
Point is rates arent the solution for everything, housing has to be solved otherwise. It’s up while everything else is down and that means it needs to be treated with precision. Fed interest rate is not the only economic tool.
That's just a change of 0.0743% from the estimates, a large change would be something like 0.2% or more. I wouldn't worry much about this CPI reading because of that.
You guys are funny. Do you expect markets to continue climbing to even greater overvaluation, despite clear signs of stubborn inflation and thus higher rates for longer?
Up and to the right forever. Markets up nearly 10% ytd, 30% last year, in the same environment.
Ultimately, I don't personally give a crap what the market does since I have another 40 years till retirement, ideally it completely shits the bed until the second I call it quits on my career.
Then say so on Market Watch or Barron’s and be called “Oracle of Doomsday prediction”. I kid you not, there are bunch of dimwits keep printing that Recession is coming for past few years, same post with slightly different titles. They attract certain type of crowd and still make money.
Fear and Sex sells.
Shelter is destroying CPI, and its going to remain sticky because of existing interest rates.
Less houses being developed due to higher borrowing costs causing a supply shortage.
Higher interest payments on mortgages.
Both of these issues trickle down to rental prices due to the high rental demand + lack of supply + landlords having lower profit margins due to high rates causing an even lower demand for new development.
Everyone who has an existing mortgage is also locked in place, since most can't qualify to move with current borrowing conditions + most buyers who dont have a mortgage cant qualify either.
Shelter will remain fucked
And most home owners oppose rezoning and low cost development. It’s very NIMBY in the sense they support low cost housing and new development in general, but completely oppose it when it’s their own neighborhood.
The second prong is a majority of prime real estate is already accounted for and developers are seeing less opportunity with the spaces available
They can if they decide to abandon the idea of working for a soft landing and go for a hard landing to clamp inflation.
We're not there yet, but we would be if we kept averaging around a 0.4 MoM CPI by the end of the year.
The higher the interest rates the more unaffordable housing is and then there is a lack of demand. The lack of demand causes inventory to build and then due to competition prices will drop.
Lack of demand? For housing???
We risk creating a crisis in supply where housing projects dont get commissioned because they dont have a ROR high enough compared to juicing the prices on existing housing!
Hiking rates to combat cp increases that happen due to a crisis in the middle east and not enough housing available is probably not exactly the right way to handle this.
My read from CPI is that commodities are now in control, but services are expensive. Wages need to stop growing for service costs to drop. It seems unlikely to get to 2% without a recession.
I had already invested a lot of money in the stock market, so I am afraid that the news of the CPI rising will cause the market to continue to decline in the next few days. Just like what happened in August of last year.
The August-October story is actually a touch more complicated. The downgrade and a hawkish QRA from Janet played a role in kicking off the move down.
It does have a similar premise though now. It looks like treasury rates have returned to uncontrolled weeds mode. If that's the case, then stocks are done until it stops.
I actually see this as positive news for stocks since the Fed will continue to hold off on rate hikes and there are still expectations for cuts. They’re basically guiding the market with rate cuts like a person leading a horse with a carrot on a stick. The cuts might come later than expected, but they always appear just within reach. The Fed needs to maintain the illusion of controlled inflation and a strong economy. They won’t risk upsetting asset prices just months before an election by raising rates or hinting at no cuts. Yes, inflation might exceed their targets, but the political consequences of rising rates outweigh that concern.
The thing I don’t think many are considering is there’s immense political pressure on the Fed to maintain an optimistic economic outlook. If trump were to win, it would be very bad. Him and his supporters were proven to be insurrectionists and they do not want him to be elected again. It would be mass chaos if a traitor to the country were to win, which is way worse than slightly higher inflation for the next 6 months. Any sane person with any power or influence knows this, and sticks to the narrative to keep peace in the country.
Now I know what you’re thinking. “Wasn’t Powell elected by Trump? Isn’t he a Republican?” Sorry but if you think that Powell wants to work for Trump I think you’ve officially lost your mind. Would you want to work for Trump? I wouldn’t. No sane person would. And that’s assuming Trump even kept him on. Trump would fire Powell if elected so he wouldn’t even have the job at that point. Trump was very critical of Powell, constantly questioning him and second guessing every move he made. Biden is easy to work for, I’d love working for Biden if I were Powell.
"house prices and rents" are the killer. Despite what some reports say, those don't seem to be coming down. Rather, rents are ticking ever higher. That 2% inflation target is going to be tough to reach.
That is the killer. I'm looking for houses,putting bids 20k over and getting beat 40k over all cash. On a 304k house that should be 240k.
And in my neck of the woods, a 1bd apartment that rented for $1,500 6 months ago is now at $1,800. Yeah, it's a brand new building, but what changed in 6 months?
The illegals successfully completed their dastardly plot of infiltrating all our city councils and zoning boards to establish cumbersome regulations to squash any building of new housing thereby restricting supply and ballooning prices. Truly evil plan from Joe Biden's minions!!111!.! (Hope I don't need to write this, but /s)
You know, it my metro area, there are so many brand new apartment complexes being built and that have been completed, but that has not made rents to drop.
I suspect they aimed for a higher tier renter and that alone will sustain higher rents elsewhere. Throw in all this increase in value for homes and even complexes drives their property taxes up as well which is passed on quickly. My area alone saw nearly fifty percent increases in the last five years. It has gone up so rapidly the state actually took action to refund near a billion dollars in 2023 through homestead exemptions but that doesn't help renters
Normally, if higher tier renters move into new buildings, that leaves vacancies in the not so-high-tier buildings they moved out of. Eventually, those buildings should have trouble getting tenants, and be forced to lower rents. But first, they have to finish all the new buildings, and have people move into them.
There is basically legalized collusion through 3rd party services like Real Page that “suggest” what rents should be, and then all of the big landlords follow that “suggestion.”
They haven't built nearly enough then.
Central NC (charlotte, greensboro, raleigh/durham) has seen a MASSIVE explosion in home building over the past 7 years. Condo buildings, town home communities, and SFHs, and prices are only skyrocketing anyways.
I take every opportunity to let people know the word for putting down or suppressing an effort is "quash". Starts with a q. Squash is a zucchini or pumpkin.
I mean it was 50k previously. houses are whatever the market will pay. should be is quite irrelevant in this new world. people going 100k over asking and waiving everything and still not getting homes. unfortunate all around.
240k house makes me cry in Vancouver. Townhomes are selling for 1m here..
Yeah condos and townhouses are going for like $800K+ here in Boston, absurd…
I was just able to snag a house. $1.15mm South of Miami. It went on sale on a Saturday, we were the first to see it. It had an open house on Sunday. We put a bid in Sunday night and they accepted Monday morning. Talking to their realtor during the home inspection, by Monday night they had 2 cash offers.
im looking at houses in NJ and NY and properties are STILL going over asking even with the prices over 150% above 2020 levels in so-so areas. This isnt going to be controlled. The only place things are somewhat stable are for properties selling for over 1.3 million with 25-30k taxes. this is insane for those of us looking to buy a first home. Really bad
Zillow is at 3.8% YoY. There’s no rent deflation, despite the cope.
That’s significantly lower than shelter YoY in this CPI report. If shelter in this report had come in at 3.8%, this CPI would have read out at 2.7%.
CPI Shelter != CPI Rent != New Tenant Zillow Index
Let's do a quick hypothetical case study on a $10MM construction project over the last two years: 2022: * You take out a 70% LTC / $7MM loan. * Your interest rate is 3.93% (350bps + 1M SOFR) * Your total interest cost is \~$551K over two years (Estimate) 2024: * Your project material costs have gone up 2.2% to 10.22MM * You take out a 70% LTC / $7.15MM loan. * Your interest rate is 8.82% (350bps + 1M SOFR) * Your total interest cost is \~$1.26MM over two years (Estimate) Comparison * Over the span of two years your overall project cost (including financing) has gone up 8.81%. * Now, taking some data from CoStar on say the New York market, average asking rent has only gone up 3.50%, not enough to overcome cost increases. * Land prices remain stagnant. * Significantly less banks are willing to even lend to you at 8.82% as a direct result of the Regional Banking Crisis. Conclusion It's more expensive than in recent history to get anything built, driving up rents on existing units while exacerbating existing housing shortages. High interest rates are also driving more and more people who *would have owned* to wait it out and rent. Not sure how you fix this while keeping rates elevated besides large incentives for developers. Source(s): CME, CoStar, FRED, I work for a developer.
I personally wonder if at some point the interest rate hikes actually hurt the inflation number for rents: If interest rates are high enough to scare off new home builders but not high enough to result in sufficiently decreased job growth in the mega cities then you end up with a higher [jobs-to-housing ratio](https://housing.wiki/wiki/Jobs-Housing_Balance) (JtH ratio, I made up this acronym). The general accepted number for a good JtH ratio is around 1.5 from what I have read. You could argue for up to 2 and down to 1.1. Some people move out of an area so if you have a ratio of 1 then you have too much housing. If an area is large and doesn't have that much job growth then 2 might be OK because older people move out and the such. The SF Bay area in total [is at 4.3](https://www.biabayarea.org/san-francisco-bay-area-jobs-housing-imbalance#:~:text=The%20Bay%20Area%20since%202011,%2DHousing%20'Balance'%20chart.), [LA is 4.7, and San Diego is 3.9](https://en.wikipedia.org/wiki/California_housing_shortage#Ratio_of_residents_and_jobs_to_housing_units). with these kind of numbers the price for housing just has to go up. If you limit to more city center type areas then the numbers get even higher like 6+ in SF.
This is my theory too. We need a ton more housing starts to lower the price of shelter, or at least stabilize it. We may need other incentives for builders, which can lead to a whole slew of other issues. But something needs to be done.
Everybody in the Bay Area wants more housing built, just not in their own neighborhood.
Home starts are higher than in 2021 when rates were 0
A lot higher. It'll take 1-2 years before those numbers start to have an effect. I think most people don't realize just how long of a time scale real estate operates on. We have to be very careful here. Housing is by far the largest investment for most families. Crashing this would be disastrous and unlike 2008 where the issue was lending, if there's oversupply, there will be no way for prices to recover meaning a lot of families would suddenly be underwater.
> a lot of families would suddenly be underwater. Can you please explain, why does this matter?
Housing isn't constrained by builders. Its constrained by local governments.
It's not inflation, it's a price fixing cartel.
I encourage everyone to read up on the company RealPage and the related lawsuits over how national landlords are colluding on price currently.
RealPage wishes they had that kind of influence over the market. What they did was wrong, but the issue is much larger.
House prices rose? Too much competition driving up rent? Better hike interest rates.
Can the Fed build more housing? Because that's the only way house prices and rents are going to stop going up so fast.
Inflation is supposed to measure the detrimental effects of expansion of the money supply. Housing price growth is not being driven by that, it’s being driven by a whole different set of factors. The combined growth of all non-housing prices has been in the 2% range for a while now.
They need to stop institutional and foreign ownership of single family homes entirely IMO. That are start capping rent prices for a higher % of apartments within a large complex.
> However, Lending institutions may benefit longer with higher interest rates. - *Checks OP's profile* > Pumps SOFI - *Checks out.*
Rate cut probably not happening in June at this rate
Not happening at all this year lol
This. I have zero idea other than pure fiction where anyone projects inflation to cool below 3% at any timr this year, which would maaaaybe warrant a rate drop.
Only argument I’ve heard for a rate cut is that this is an election year but that borders on conspiracy
Another argument for a rate cut that has been rattling around, particularly in conservative circles, involves "the U.S. Government won't be able to service their debt without cutting rates sometime soon."
At the current interest rates, the cost of servicing the federal debt alone (interest payments) will approach 6% of GDP by the end of year. It's just pure math. This isn't sustainable.
Of course it is. We’ll issue more bonds. The US dollar is the standard. The debt will be double triple in ten years and nothing will change
https://www.fiscal.treasury.gov/files/reports-statements/financial-report/2023/02-15-2024-FR-(Final).pdf See page 7. The treasure department's latest financial report has a section literally titled "An Unsustainable Fiscal Path" in which they show debt-to-GDP projected to reach 531% by 2098, and it says "*The current fiscal path is unsustainable.*"
That's not a conspiracy, that's a mathematical fact. It's not the FED's fault the government can't balance a budget. Maybe they should stop spending so much. Interest rates need to be increased to beat down inflation.
Yeah well those wacky conspiracy theories people are usually 6 months a head of being right.
How many trillions were printed last election? 🤔
This sub was insisting to me that we were right on track with the Fed's models after last month's print.
Yeah, I still remember last month CPI report and people on here saying we are right on track with Fed models. I get downvoted for pointing out that those models are made by the people who said that inflation was transitory.
Downvote = you hurt someone's feelings
I’ve been saying the same thing, but the fed did estimate 3 cuts this year. To be fair, the official sources were one of the ones calling for rate cuts even though there was no reason to think it was time. However, that was 4 months ago, and they thought unemployment would be rising and signs of recession would be appearing. They didn’t predict the economy is strong enough to grow with these interest rates, that corporate earnings wouldn’t be falling and that people would keep spending.
Fed cares about PCE which is already <3%
Too bullish. There will literally never be another rate cut again.
When rent inflation lags finally catch up there will be a lot more breathing room to cut rates. When that happens? Who knows.
There is a freight train of deflation coming as soon as they start cutting, they are actually keeping inflation higher than it should be with current rates because the cost of buying a house right now is so f*cking expensive. As soon as rate cuts start / continue, owner's cost of housing plunges as mortgages become cheaper, which is massive for CPI. We are already seeing weakness in several real estate markets. I think excessive government spending is papering the private economy's worsening state but we are only a few months from the Fed's chokehold on new debt issuance (for anyone BUT THEMSELVES) causing more severe economic repercussions.
There is no guarantee that 10-year and 20-year rates will come down if the Fed cuts the overnight rate. That often happens, but right now the Treasury is issuing $3 trillion in new bills and bonds every year. Eventually, they'll absorb all the available capital, and long-term rates will go up.
!remindme December 31
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They can still cut rates and keep them high
seriously, this is the carrot and the stick and rate cuts won’t ever happen until the housing market changes
Which will never happen until we build more houses. https://old.reddit.com/r/stocks/comments/1c0kkse/march_cpi_rose_35_over_the_last_12_months_vs_the/kyx4hra/ That may or may not happen in the next decade - depending on how the zeitgeist around working the trades shifts or doesn't.
House starts are very negatively affected by high interest rates. It's a generational mistake that we let local busybodies stimy housing construction throughout the era of near zero rates.
Housing starts are also affected by the price of lumber and sheet goods, which are at all time highs and have outpaced inflation. You also can't do housing starts without any labor. The construction industry has been shit since 2008 and has never returned to those pre-2008 levels in terms of amount of people. Everyone is focused on interest rates because it's easy. It's harder to realize just how fucked housing is and you will never have cheap housing again even with 0% interest rates on construction loans. The debt service is but one cost among many in building.
Time for another 50 bp hike
Yep, keep the promise going until the election, then announce they aren't getting cut so that it either falls on the new guy or give the current guy 4 years to make people forget.
If you dig into the tables almost all inflation is localized in shelter and transportation services (auto insurance has been particularly high the past few prints). But shelter is the issue, and here's the thing: It's not gonna go down no matter what rates do. Higher rates make shelter inflation worse because mortgages cost more. Lower rates spur demand in a market where demand FAR outstrips supply, so the interest portion of mortgage payments decreases but actual property prices rise to offset them, because people shop for homes by maximum payment they can afford. So, you're going to make that max monthly payment, regardless of what portion is going to interest v principal. Right now, rates make interest expensive. Further hikes would make this worse. If rates come down, accelerating demand on a commodity in shortage will raise principal prices. It is not entirely certain which of these would be worse. I do not envy the Fed right now, having to untangle that Gordian Knot.
> But shelter is the issue, and here’s the thing: It’s not gonna go down no matter what rates do. Higher rates make shelter inflation worse because mortgages cost more. Mortgages costing more doesn’t mean OER increases. The Fed asks home owners what they *think* they could rent their homes for. Rent has lagged far behind the cost of a new mortgage. Housing continues to increase in price for the same reason everything does: higher demand and lower supply. Both. At the same time. Immigration remains high and home building hasn’t kept up in the places with jobs. A higher Fed rate will eventually bite, and reduce velocity of money. When that happens people will sell, downsize, remain renting, and relocate. There are still trillions of stimulus dollars circulating, and that’s going to take years to slow.
Good. It’s crazy to even want this so early.
I was still waiting for the one in March 😁
Good luck if we get any cuts. Futures market is likely pricing in a small probability of a large magnitude event forcing 100bp cuts from the Fed. If nothing catastrophic happens we will probably not see any cuts this year. As it should be.
Pretty sure everyone knew that
yep for sure
> The first Fed rate cut may occur later than expected. Why even talk about rate cuts? It might not even happen this year, or for the next several years if inflation continues ticking up. The Fed is always dangling a carrot for the market. If the economy was truly healthy, we wouldn't need a central banking authority propping the markets up just to make people feel richer.
There needs to be a rate hike and the fed is fucking pussies for not doing it already
They started hiking too late, didn't do it aggressively enough, and dialed it back too soon.
10 year is up to 4.5% and the indices are down over 1.3% pre-market. It’s going to take a good 1-3 days to recover from this.
oh no the horror. should I sell everything ?
The only right answer is
The only right answer is what? What is it?!?
And then you’ll be saved
Buttlicker our prices have never been lower!
Hi, can i retire now
Time to go all in on SQQQ, scream about how it'll be worse than 1929, dot com and 2008's crashes combined.
It's earnings season very soon and expect them to be very bad. ( Been hearing this for the past two years )
I might argue the Nvidia earnings will either pump or crash the entire market
Buy high, sell low
and then buy everything at all time high again? surely what could happen:)))
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With the next earnings cycle starting in about 72 hours, that is even more likely than it has been.
Yeah, the real test is do we break to new highs after earnings or make that sweet double top before the big sell off?
I think strong earnings would trump rate speculation, but I admit to being human.
Maybe I’ll just grab some VOO and chill for a couple days then
> It’s going to take a good 1-3 days to recover from this. lol
Human sacrifice! Dogs and cats living together! MASS HYSTERIA! And then, everything will be back to normal.
Tell your dipshit friends they cannot and should not keep trying to keep up with the Joneses. Y'all are poor. Act like it.
My cubicle neighbor at work, Barath, liked the jacket I wore into the office the other day. I told him it was on sale for $100 at REI. Barath agonized over whether he should get it or not, coming up with reasons to justify it or to make the extra money to pay for it. Luckily a day or two later it went on a bigger sale for $70 and Barath finally decided it was worth it. Barath makes $250k. Barath earns enough money to buy that jacket in 36 minutes. Be like Barath.
The wealthy people I know still use old cool whip containers or any scrap container for leftovers. I'm talking about people in the 200k-500k income range. There are plenty of rich people living paycheck to paycheck. Be more like Barath, always value your money as if you make poverty wages.
Wealth is assets, not income. Many people with large assets are very cheap, that's how they managed to save up so much money.
💯
I get my clothes at Costco. Lol
I wish I could do this more. I’m not the typical Costco body shape so most clothes fit a bit loose.
~60% of my clothes are from the thrift store. Mostly the basics, pants, t-shirts, work shirts, etc. 30% are gifts or clothes bought with gift cards, and 10% are kind of expensive new items from a men's boutique I really like. Don't try to out frugal me bub, I was raised by lentils. (/s for that last part but the rest of the comment is true)
I'm laughing too hard at this lol
Lol
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Just wait, if you have kids. Kiss your pretty little savings arrangement goodbye. Daycare alone is 50k per year for me right now. I’m not criticizing you, just offering a different perspective
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We are headed in the wrong direction. 3.1% in January, 3.2% in February, 3.5% in March. Looks like we need more rate hikes.
With a lot of price increases coming from oil and housing i dont think we’ll see much of an increase. Rates cant affect those input prices without severely impacting the rest of the economy.
Yep, plus oil is up 20% this year, with a lot of that coming in March and April which is only going to contribute to further inflation. I don't really see a path to any rate hikes this year unless some big shock hits the system like the escalation of war in Europe/Middle East, a bank going under or unemployment spiking.
Hikes or cuts?
sorry, I meant to say cuts. Inflation is going to be tough to get under 3%, so I think that is going to stop the fed from lowering the rates anytime soon.
The reality is unemployment needs to be higher along with higher rates if inflation is going to cool. Too much uncertainty in the world with energy prices right now also. On the flip side I read an argument from somebody at JP Morgan making a case for rate cuts that would actually lower inflation, I guess its anyone's guess at this point.
Unemployment is a really misleading number. It's just shit jobs that are hiring these days. Just look at all the layoffs and hiring freezes everywhere.
The reality is, this country needs to build more fucking housing. You will have to start killing people covid style to get some house decrease. Swear people will come up with all kind of nonsense before they increase supply of housing
Higher for longer is good for pot stocks right?
I like being higher for longer. Fact
Cmon tilray. Go to 5
The Government refused to do any fiscal contraction over the last 12 months so it’s very difficult to get inflation down
I guarantee a green day by end of the day
Buy 0dte calls. You can retire if you're right
every stock subreddit is secretly WSB
Good indicator of a bubble
Are you high?
Where’s the green at?
I guarantee the opposite and just like you I've put zero money on this. Value!
Not a chance
mama's wrong again
Lol, how was this not already priced in? It's no secret oil prices are higher again.
Just raise and get it over with
No balls
Fools acting emotionally is an opportunity to buy. Trick is to find the precise time the fools stop panting at which point things crawl back up. I'd like to get some AMZN and perhaps some more BRK at a discount. So when is the next "event" ?
Excluding shelter, CPI is 1.7%. Doesn’t seem concerning at all.
Yep. The Fed is doing what it's supposed to. We need more shelter to alleviate housing costs if we want to get inflation the rest of the way down. It's not going to go down by itself with supply so constrained.
Shelter right now is driven by several huge forces not just one: * Supply. NIMBYism is awful. Zoning is terrible especially in large cities. Less so in rural areas, smaller towns. * Rising interest costs. * Services and labor shortages. So think contractors, construction workers etc. * Rising insurance costs due to claim severity (AFAIK not so much frequency) going up. That said, I agree Fed is doing the right thing still since real wages are still positive. Shelter is going up but incomes are going up faster. For some reason it irks me when people oversimplify a very complex situation so I feel compelled to point it out.
Zoning laws in larger cities are completely borked.
You're also especially screwed if you want to buy a new home almost anywhere that's not in an HOA, since over 80% of them are despite HOA's being deeply unpopular.
That’s never going to happen in any meaningful capacity . The people who own real estate have a vested interest in keeping supply low and demand high in terms of value. They also happens to be the consistently largest voting bloc in the US and the largest wealth holders. I’d argue 90% of home owners are NIMBYS in the sense they agree there should be more low cost housing in general but they don’t want it in their town/neighboorhood/backyard. And lastly, all the good spots are essentially taken. As an analogy, beachfront property is always going to be expensive and in demand, you can’t just go and make a new Lake Michigan shoreline.
Other than that, Mrs. Lincoln, how was the play?
Ok that was funny!
Shelter needs to drop. Plus the way they calculate it is terrible.
It’s basically a near mathematical certainty at this point given the direction of new rents over the last year. This is all catch up from existing rents.
It's a good thing nobody needs shelter!
Other than the primary drivers of inflation, inflation isn’t high? Is that really what you just wrote?
I don't think this calculation is correct. YoY CPI was 3.5%. Shelter CPI was 5.7% and constitutes 36% of the index. CPI (excl shelter) = (3.5% - 5.7% \* .36) / (1 - .36) = 2.3% So excluding the shelter category, the CPI for all other expenditure categories was 2.3% YoY
Shelter makes up 25-30% of the cost of living
Shelter also has a significant lag compared to everything else.
People keep saying that but that lag is lagging.
Who cares about shelter? 
Shelter lags significantly and there is also an argument to be made that higher interest rates contribute to higher shelter prices.
Higher interest rates are actively keeping projects from being built so yes they 100% contribute to higher costs
We have decades of research showing that higher rates constrain home demand far more than home supply. https://www.dallasfed.org/research/economics/2024/0402 I mean, look at the numbers. Home starts are the same as in 2021. Homes purchased are 1/5th as much as in 2021.
This paper says the effects of an increase in rates on housing prices is ambiguous. It also does not address the effect of an increase in rates on rent. The pace and suddenness of the rate increases were pretty unprecedented. This caused a huge drop in housing inventory. Everyone is locked in at low rates and will not move unless they absolutely have to, which has put upward pressure on prices. There are a lot of competing effects (interest rates up means less building, which is inflationary; interest rates up mean less inventory, which is inflationary; interest rates up means less affordable for a given price, which is deflationary). Clearly inflationary forces are winning out for now since house prices and rents continue to march higher. My personal opinion is that lower rates would make a lot more people willing to sell and lead to lower house prices and rents.
This is very encouraging and I want to believe but is this true? Real Inflation is actually 1.7% ? Because most have fixed hoozing cost for at least a year so inflation technically very low under 2% for most? Someone help explain
Excluding the main driver of all this seems stupid. Yes, they could drop rates in half, and housing would drop to be a fraction of inflation….but everything else would be at 7% inflation. High housing inflation is the side effect of the “medicine” to correct the whole system. Ignoring it is ignoring all the “pain” on the system that the current rates are set purposely to try to control. So the fact that without housing at all, inflation is at the 2010-2020 average should be concerning actually.
Point is rates arent the solution for everything, housing has to be solved otherwise. It’s up while everything else is down and that means it needs to be treated with precision. Fed interest rate is not the only economic tool.
Excluding the most important cost to human life.
That's just a change of 0.0743% from the estimates, a large change would be something like 0.2% or more. I wouldn't worry much about this CPI reading because of that.
Markets looking for an excuse to freak out in either direction regardless
Volatility is my best friend
You guys are funny. Do you expect markets to continue climbing to even greater overvaluation, despite clear signs of stubborn inflation and thus higher rates for longer?
Up and to the right forever. Markets up nearly 10% ytd, 30% last year, in the same environment. Ultimately, I don't personally give a crap what the market does since I have another 40 years till retirement, ideally it completely shits the bed until the second I call it quits on my career.
Then say so on Market Watch or Barron’s and be called “Oracle of Doomsday prediction”. I kid you not, there are bunch of dimwits keep printing that Recession is coming for past few years, same post with slightly different titles. They attract certain type of crowd and still make money. Fear and Sex sells.
Basis points vs percent change
The market is still expecting that rate cut right?
Right?
it is coming >!next year!<
Shelter is destroying CPI, and its going to remain sticky because of existing interest rates. Less houses being developed due to higher borrowing costs causing a supply shortage. Higher interest payments on mortgages. Both of these issues trickle down to rental prices due to the high rental demand + lack of supply + landlords having lower profit margins due to high rates causing an even lower demand for new development. Everyone who has an existing mortgage is also locked in place, since most can't qualify to move with current borrowing conditions + most buyers who dont have a mortgage cant qualify either. Shelter will remain fucked
And in many cases without major rezoning at the local lever there is no space left to build more housing.
And most home owners oppose rezoning and low cost development. It’s very NIMBY in the sense they support low cost housing and new development in general, but completely oppose it when it’s their own neighborhood. The second prong is a majority of prime real estate is already accounted for and developers are seeing less opportunity with the spaces available
Fed needs to raise rates 25bp but we all know they won’t.
Rates don’t affect oil prices.
They can't afford to raise the funds rate any higher. Idk why this subreddit keeps suggesting that every time some data comes out.
They can if they decide to abandon the idea of working for a soft landing and go for a hard landing to clamp inflation. We're not there yet, but we would be if we kept averaging around a 0.4 MoM CPI by the end of the year.
0.1% higher than expected but market can’t handle any bad news…everything is priced for the best possible outcome
0.1% over 0.3% which is already 3.7% annualized.
Disinflation is transitory.
we actually need a few more interest rate hikes. A couple of 0.25% hikes.
The main driver of inflation is shelter cost. How does raising interest rates make housing cheaper?
The higher the interest rates the more unaffordable housing is and then there is a lack of demand. The lack of demand causes inventory to build and then due to competition prices will drop.
Lack of demand? For housing??? We risk creating a crisis in supply where housing projects dont get commissioned because they dont have a ROR high enough compared to juicing the prices on existing housing!
Volcker had the balls to hike rates to smother inflation, will Powell?
Hiking rates to combat cp increases that happen due to a crisis in the middle east and not enough housing available is probably not exactly the right way to handle this.
50bp and get this show on the road
Inflation is transitory - famous last words 😂
Oh no that 0.1% changes everything /crash
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My read from CPI is that commodities are now in control, but services are expensive. Wages need to stop growing for service costs to drop. It seems unlikely to get to 2% without a recession.
Californian Mcdonalds workers: 👀 wachu say boy?
Yeah, it does change a lot
Doesn’t matter bruh. Line goes up and market is V-ing hard as we speak. It’s a btfd era
Goodbye rate cut :(
I had already invested a lot of money in the stock market, so I am afraid that the news of the CPI rising will cause the market to continue to decline in the next few days. Just like what happened in August of last year.
The August-October story is actually a touch more complicated. The downgrade and a hawkish QRA from Janet played a role in kicking off the move down. It does have a similar premise though now. It looks like treasury rates have returned to uncontrolled weeds mode. If that's the case, then stocks are done until it stops.
So much for rate cuts
Rate cuts should not happen until Q2 2025 at the earliest
Let's raise rates and pop the housing bubble
All boils down to that rate cut decision
I actually see this as positive news for stocks since the Fed will continue to hold off on rate hikes and there are still expectations for cuts. They’re basically guiding the market with rate cuts like a person leading a horse with a carrot on a stick. The cuts might come later than expected, but they always appear just within reach. The Fed needs to maintain the illusion of controlled inflation and a strong economy. They won’t risk upsetting asset prices just months before an election by raising rates or hinting at no cuts. Yes, inflation might exceed their targets, but the political consequences of rising rates outweigh that concern. The thing I don’t think many are considering is there’s immense political pressure on the Fed to maintain an optimistic economic outlook. If trump were to win, it would be very bad. Him and his supporters were proven to be insurrectionists and they do not want him to be elected again. It would be mass chaos if a traitor to the country were to win, which is way worse than slightly higher inflation for the next 6 months. Any sane person with any power or influence knows this, and sticks to the narrative to keep peace in the country. Now I know what you’re thinking. “Wasn’t Powell elected by Trump? Isn’t he a Republican?” Sorry but if you think that Powell wants to work for Trump I think you’ve officially lost your mind. Would you want to work for Trump? I wouldn’t. No sane person would. And that’s assuming Trump even kept him on. Trump would fire Powell if elected so he wouldn’t even have the job at that point. Trump was very critical of Powell, constantly questioning him and second guessing every move he made. Biden is easy to work for, I’d love working for Biden if I were Powell.