This is the ‘last remaining leg’ in the inflation fight, JPMorgan economist says

The long-awaited end of inflation is just one roadblock away: housing costs—according to Joe Seydl, JPMorgan’s senior markets economist.

Seydl called housing “the last remaining leg” to the Fed’s preferred target of 2%. Although prices have moderated over the past two years, the painfully slow drop in housing costs has made progress much slower.

Housing falls under “shelter costs,” an inflation component calculated using a metric known as owners’ equivalent rent, which is a proxy gauge for how quickly housing costs are rising.

Because shelter is by far the largest expense for the average American family, it accounts for a whopping 36% of the Consumer Price Index (CPI), larger than any other category.

In June, shelter costs dipped to a 5.2% annual rate, which is much higher than the overall CPI rate of 3%. Although improving, it’s still two percentage points higher than the pre-pandemic average.

Housing inflation is also subsiding “much, much slower than anyone really expected,” said Olivia Cross, an economist at Capital Economics. In the meantime, Americans are left holding the bag with record home and rental prices.

Shelter costs are higher across the board

Americans who are looking to buy a home face the one-two punch of high real estate prices and elevated mortgage rates.

New data from Realtor.com shows that the average listing price of a home reached $445,000 in June. With 30-year mortgage rates averaging 7% as of last week, that’s a financial burden most Americans simply can’t afford.

According to a new report by Creditnews Research, owning a home has become more expensive than renting in all 100 of America’s most populous metros. In most markets, homeownership carries a premium of at least $1,000 or more each month.

But that doesn’t mean renting is cheap. Home listing website Zillow shows a national average rent price of $2,150 per month, based on 544,740 available units.

Research from the Joint Center for Housing Studies at Harvard University found that half of American renters are considered “rent burdened,” which means they spend at least 30% of their monthly income on shelter and utilities.

Among those who are rent-burdened, 50% spend at least half of their income on shelter and utilities.

The rent burden is increasing “across every single income category,” said Whitney Airgood-Obrycki, a senior research associate with the Joint Center.

Airgood-Obrycki said that even renters who downgrade their neighborhoods and live farther away from work “still end up paying too much for housing.”

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