Today, rental vacancy data stands at 7.2%, while the lowest during COVID was 5.6%. Rent inflation increased during the coronavirus crisis, bringing headline CPI inflation to a high of 6.6% year on year, but currently stands at 2.5%.
Since late 2022, I have been convinced that the Federal Reserve really wanted to attack the labor supply and ensure wage growth fell to a level they were comfortable with. Rule of thumb: if wage growth is 3% and productivity is 1%, the 2% inflation target can be achieved. Regardless of what AI can do for productivity, the Fed simply feels better once wage growth is 3% or lower – and currently stands at 3.7% year-over-year based on the latest BLS jobs report data.
Homeowner vacancy rate
The other vacancy story doesn’t show the data returning to normal yet, but this is also a story of homeowners doing well, as evidenced by the homeowner vacancy rate. The homeowner vacancy rate is 1.2%, which is much better than the low of 0.07% during COVID. The increase in inventory and vacancy data has meant that house price data has cooled from the very unhealthy growth of 2020 to a healthier environment in mid-2022, with no sign of hugely stressed sellers.
If you look at the total number of active listings in the US, as of NAR Data shows the all-time low was 860,000 during Covid, now at 1.22 million, but normal active listings are actually 2-2.5 million.
For those asking about the difference in this graph today compared to 2008:
- 2008: 3.8 million active inventory
- Currently: 1,220,000 active inventory
- So roughly a gap of 2.6 million
This means that the gap is larger than what would be considered the normal average inventory level between 2 and 2.5 million. Again, this has more to do with the fact that we don’t have the once-in-a-100-year housing financial crisis that resulted in foreclosures and foreclosures reaching very high levels before the recession started.
Conclusion
The rising rental vacancy rate is good for inflation, and the increase in homeowner vacancy rates was much needed. Both data points, which don’t get much attention, only add to the reality that the housing market is in a much healthier state than it was during the COVID-19 market. Inventories are up, price growth is cooling, rent inflation is now rent disinflation, and in some parts of the US it is rent deflation.
Now that mortgage spreads have improved and mortgage rates are at 6% instead of 8%, this looks a lot better than what we’ve been dealing with in recent years. Now that there is disinflation in rents and inventory growth is higher than the low point of the corona pandemic, the backdrop of a healthy housing market also has potential for years to come.
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