Spiking rent prices complicate the Fed's plan to cut rates, report warns

A robust rental market will make it harder for the Federal Reserve to justify lowering interest rates, a new study warns.

According to the Zumper National Rent Report, the cost of renting a home continues to rise, with rent prices either remaining stubbornly high or surging.

Across the country, the typical one-bedroom apartment now costs $1,526, a 1.5% bump from June. Meanwhile, a two-bedroom place will now set you back $1,900 after a 1.9% surge.

There's been a lot of talk of late about how rising rents have been dragging inflation away from the Fed's desired 2% target.

Treasury Secretary Janet Yellen has suggested this situation will cool in the coming months, as it takes time for rent prices to trickle into CPI data and other inflation gauges.

As such, Zumper argues that its index offers a more up-to-date reflection of shelter inflation than the backward-looking CPI because it gauges current asking prices nationwide.

Meanwhile, stubbornly high rent spikes continue to squeeze tenants and complicate the Fed's plans to ease rates.

A tale of two states

Zumper highlights two states in particular when looking at the state of the rental market.

The first one is Florida, where there's been "a large influx of supply" so far this year, according to the report.

Despite about 66,000 new rental units coming online in the first quarter of 2024, rent prices remain high, suggesting there's still a huge untapped demand.

Jacksonville was hardest hit, with a 5.4% drop year on year. Orlando followed with a 3.1% decline, with Miami falling 2.1%, and Tampa by 1%.

Zumper went on to contrast Florida's rent market with Raleigh in North Carolina, which has also witnessed an uptick in supply. There, rent's plunged by 9% since this time 12 months ago.

This suggests that the Biden administration's efforts to allocate $100 million to affordable housing may not meaningfully cool housing costs in areas with heightened demand.

And while the Democrats say this cash is part of a wider plan to create two million affordable homes nationwide, the National Low Income Housing Coalition's warned the country is seven million short overall.

The report then focused on New York, where all four cities across the state have experienced double-digit rent rises over the past 12 months. Syracuse led the pack with an annual growth of 29%.

Eye-pooping demand for rentals is evident in record-low rental housing stock and vacancy rates. For example, New York City's vacancy rate has sunk to a historic low of 1.4%—from 4.5% just two years ago.

Meanwhile, NYC's net housing stock has only risen by 2% over the past five years, which is far below the national average of 10%.