Today, the rental vacancy data is standing at 7.2% when the lowest during COVID was 5.6%. Rent inflation took off during Covid, sending the core CPI inflation data year over year to a high of 6.6%, but it is currently at 2.5%.
Since late 2022 I’ve believed that the Federal Reserve really wanted to attack the labor supply and make sure wage growth falls to a level they feel comfortable with. Rule of thumb: if wage growth is 3% and productivity is 1%, the 2% inflation target can be met. Regardless of what AI can do for productivity, the Fed just feels better once wage growth is at 3% or below — and it’s currently at 3.7% year over year using the last BLS jobs report data.
Homeowner vacancy rate
Now, the other vacancy story hasn’t yet shown a bump in the data to return to normal, but this is also a story of homeowners doing well, as reflected in the homeowner vacancy rate. The homeowner vacancy rate stands at 1.2%, which is much better than the all-time low of 0.07% during COVID. The rise in inventory and vacancy data has led home-price data to cool from its very unhealthy growth from 2020 to mid-2022, to a more healthy backdrop, without showing any signs of massively stressed sellers.
When you look at total active listings in the U.S., per the NAR data, you can see the all-time low here was 860,000 during Covid, now currently at 1.22 million, but normal active listings are really 2-2.5 million.
For those asking about the gap in this chart today versus 2008:
- 2008: 3.8 million active inventory
- Currently: 1,220,000 active inventory
- So roughly a 2.6 million gap
This means the gap is higher 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 financial crisis in housing that led the foreclosure and bankruptcy data to reach very high levels before the recession started.
Conclusion
Rising rental vacancy is good for inflation, and the rise from the COVID-19 levels on homeowner vacancy was much needed. Both of these data points, which don’t get much attention, just add to the reality that the housing market is in a much healthier state than during the COVID-19 market. Inventory is up, price growth is cooling, rent inflation is now rent disinflation, and in some parts of the U.S., it’s rent deflation.
Now with better mortgage spreads and mortgage rates at 6% instead of 8%, this looks a lot better than what we had to deal with in the last several years. Also, with rental disinflation happening and inventory growth higher than the lows of COVID, the healthy housing market backdrop has legs for years to come.
