What’s Really Going On With Rent? Five Measures To Compare

CPI data shows rent has gone up at least 0.4 percent for 29 months. Let’s compare the CPI with four other measures.Year over year percent changes in five measures of rent, All data is end of quarter.Five Measures Explained

New Tenant Rent IndexThe BLS has an excellent discussion of the  emphasis mine.

The New Tenant Rent Index and All Tenant Regressed Rent Index are research index series that use data sourced from data collected in the Consumer Price Index (CPI) Housing Survey. The New Tenant Rent Index (R-CPI-NTR) measures prices renters would face if they changed housing units every period. The rent component of the official CPI measures the change in all rents, including new leases, renewals, and rents in the middle of a lease. In contrast, the New Tenant Rent Index uses only a subset of the data the official CPI uses, namely the first survey observations after new tenents move into their sampled housing units. The All Tenant Regressed Rent Index (R-CPI-ATR) is a measure with a scope similar to the CPI, but using methodology similar to the New Tenant Rent Index. The All Tenant Regressed Rent Index measures the rent paid by all renters, both new and continuing, and incorporates most of the survey data used for the CPI Rent of primary residence index. The All Tenant Regressed Rent Index is published alongside the New Tenant Rent Index to facilitate comparisons.

The New Tenant Rent Index and All Tenant Regressed Rent Index series are currently calculated as quarterly indexes, with observations from three months of the housing survey pooled together. The two series begin in 2005. Every period, the entire series is re-estimated. In the regression method used, new observation pairs influences the index over the entire time spanned by the pair. The most recent periods of a repeat transaction index like the New Tenant Rent Index are prone to large revisions, because the rent observations spanning those periods accumulate gradually as tenants move. For example, if a tenant moves into a housing unit in December 2023 and the subsequent tenant moves into the housing unit in December 2024, then the value for the New Tenant Rent Index in 2023Q4 will be revised when the housing unit is next surveyed after December 2024. In contrast, the non-seasonally adjusted indexes for the CPI are seldom revised. Sample sizes for the New Tenant Rent Index are much smaller than for the All Tenant Regressed Rent Index or the official CPI; this is especially the case in the first and fourth quarters when fewer moves happen.

The New Tenant Rent Index and All Tenant Regressed Rent Index were adapted from the “New Tenant Repeat Rent Index” and “All Tenant Repeat Rent Index” of the research article “Disentangling Rent Index Differences: Data, Methods, and Scope“. The article further details the indexes’ construction and uses the index to compare the CPI rent component to other rent indexes. The New Tenant Rent Index and All Tenant Regressed Rent Index are currently calculated as prototype research indexes. Their methodology may change as they continue to develop.

The ATRR is designed to be a bit more timely but also more prone to error especially in the first and fourth quarters.The NTR is a very small sample and confidence levels in the data are wide.Since ATRR is based off BLS methodology, one might expect it to track CPI rent pretty closely and it does.A quick look at the above chart shows the BLS lags ATRR which lags NTR which lags Zillow which lags Apartment List.Zillow ZORI DiscussionThe  is a smoothed measure of the typical observed market rate rent across a given region.

ZORI is a repeat-rent index that is weighted to the rental housing stock to ensure representativeness across the entire market, not just those homes currently listed for-rent. The index is dollar-denominated by computing the mean of listed rents that fall into the 40th to 60th percentile range for all homes and apartments in a given region, which is weighted to reflect the rental housing stock.

As I read that as using list prices as opposed to actual measured contracts. And like Apartment List, it seems overly weighted to new leases.The problem with overweighting weighting new tenants is they only represent about 9 percent of the market and are much more volatile that rent renewals.Apartment ListThe  are tabulated using fully-representative median rent statistics for recent movers taken from the Census Bureau’s American Community Survey, extrapolated forward to the current month using a growth rate calculated from real-time lease transactions that take place on our platform.

We use a same-unit, repeat-transaction analysis similar to Case-Shiller’s approach, comparing only units that are available across both time periods to provide an accurate picture of rent growth.

There are two big problems with Apartment List. The data is not seasonally adjusted and it is new tenant data onl.Apartment List – National Rent Price vs CPIApartment List National Rent vs the CPI Apartment List does not seasonally adjust data making it useless for month-over-month comparisons. That it only contains new leases produces the wild swings in the first chart.Zillow has the same flaws.NTR is also new tenant only, but it may be usable because NTR is also incorporated into ATTR.The smart thing to do is toss Apartment List and Zillow as unusable and see what we can glean from the BLS vs the Cleveland Fed measures.ATRR vs CPI Rent Year-Over-Year 2023 Q4As one might expect the ATRR and CPI track close. Also note that ATRR peaked one quarter before the CPI. ATRR may be a bit lagging too so the real lag may be 6 months or so.ATTR is up 5.27 percent from a year ago vs 6.80 percent for the CPI. But neither is particularly appealing to the Fed.Also year-over-year comparisons are a bit flawed because of easy comparisons.NTR Confidence RangeAs noted above, new tenant data is a small sample and even smaller in the first and fourth quarter when few people move.The confidence range for the NTR in the fourth quarter is a wild -0.54 percent to -8.94 percent which is not that confident.Regardless, note that the NTR went from +2.58 percent to -4.74 percent but the impact on ATTR was a drop of +5.95 percent to 5.27 percent.ATRR vs CPI Index Levels 2023 Q4Actual index levels tell an even more compelling story.I picked an index year of 2000 for the CPI. It could have been any year and it would not make a difference to the percentages.That the CPI line is above the ATTR line is not meaningful. Had I picked a 2015 as the base year for the CPI the yellow line would be below the green line.What matters are the calculations.

The ATRR and CPI Rent are on an identical path. The next calculation is more interesting.The NTR fell from 201.18 to 183.58. That’s a huge quarter-over-quarter decline of 8.7 percent.But despite that whopping decline, the ATRR which incorporates that NTR data rose from 193.29 to 196.26. That’s a rise of 1.5 percent for the quarter. So despite new tenant leases falling, overall rents are still up 1.5 percent for the quarter.And look at the CPI rent index. It rose from 222.5 to 225.4. That’s a gain of 1.3 percent. Despite the decline in new leases that has everyone going gaga, the ATRR quarter-over-quarter number rose more than the CPI.NTR Year Over Year 2023 Q4Nearly everyone on the planet looks at that chart and tells me rent is dropping or that it will soon drop.Rent is not dropping and I have been hearing “soon” for two full years because “the CPI is Lagging”.Sorry, but year-over-year comparisons do not mean falling prices (see the yellow and green lines two charts back). And importantly, falling prices on new tenant leases do not mean falling prices on existing leases are imminent either.This is what the data shows in spades.ATRR vs CPI Rent Quarter Over Quarter 2023 Q4ATRR is more timely but it is also more volatile than the CPI.Rent Now Set by AIFinally, it’s worth mentioning that rent prices are now set by AI. Please consider .

“Never before have we seen these numbers,” said Jay Parsons, a vice president of RealPage, as conventiongoers wandered by. Apartment rents had recently shot up by as much as 14.5%, he said in a video touting the company’s services. Turning to his colleague, Parsons asked: What role had the software played?

“I think it’s driving it, quite honestly,” answered Andrew Bowen, another RealPage executive. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”

“The beauty of YieldStar is that it pushes you to go places that you wouldn’t have gone if you weren’t using it,” said Kortney Balas, director of revenue management at JVM Realty, referring to RealPage’s software in a testimonial video on the company’s website.

The nation’s largest property management firm, Greystar, found that even in one downturn, its buildings using YieldStar “outperformed their markets by 4.8%,” a significant premium above competitors, RealPage said in materials on its website. Greystar uses RealPage’s software to price tens of thousands of apartments.

In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage.

To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge.

For tenants, the system upends the practice of negotiating with apartment building staff. RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.

One of the algorithm’s developers told ProPublica that leasing agents had “too much empathy” compared to computer generated pricing.

Looking AheadEveryone has been jumping the gun for nearly two years based off Zillow or Apartment List or the NTR.And every month someone posts data based on new tenants and says rents are falling. Sorry, they aren’t.I do expect the pace of rent increases will slow.Perhaps its starts next month. I am not saying it can’t. I am saying it hasn’t happened yet, nationally. And I am also saying don’t place too much faith in what new tenant leases are doing because they are only 9 percent of the market.New leases rose faster than existing leases for a while now they finally may be falling. But overall prices are still going up.A Final Word on LagsOK rent is lagging. Tell that that to the cash strapped renter who sees this chart.CPI data from the BLS, chart by Mish For the 29th consecutive month rent was up at least 0.4 percent. Shelter, a broader category, rose 0.6 percent. Food rose 0.4 percent.For discussion please see Factor in BidenomicsIn addition to the mess the Fed made in housing, one needs to factor in the inflationary impacts of Bidenomics.Our net zero lesson of the day is Biden taunted the Supreme Court on Student Debt Cancellation: Biden’s regulations, big union wage increases, and student debt cancellation are all inflationary.Big Explosion of Government and Social Assistance JobsPresident Biden is bragging about job growth in 2023. But he doesn’t say where those jobs are.Data from the BLS, chart and calculations by Mish. On February 5, I noted a Fed Chairman Tells 60 Minutes US Fiscal Path is UnsustainableFed Chair Jerome Powell tells 60 Minutes that it’s “urgent” the US address its “Unsustainable Fiscal Path”Please consider The Fed normally does not comment on fiscal policy, but Powell did. “Debt is growing faster than the economy. So, it is unsustainable. … You could say that it was urgent,” said Powell.I list 15 key takeaways from the interview. Click on the above link for discussion.Congressional Spending Out of ControlOn top of the Fed distortions and Bidenomics, there is no fiscal discipline in Congress.For example, please see Senate Republicans are pushing free money for Ukraine and Israel while doing nothing about a surge of illegal immigrants.Despite all of this, the consensus opinion is for a soft landing.What a hoot. Get real.More By This Author:Fed Rate Cut Expectations Drop On Unexpectedly Strong CPI DataAnother Hotter Than Expected CPI Led By Shelter, Up Another 0.6 PercentThe Fed Is Very Concerned Over Spending And Interest On The National Debt