Rents rose in August, suggesting that the rental market is still pushing up overall inflation.
A report from Rent.com released on Friday found that rent prices rose by just over 0.7% from the month before. The national median rent price is now $2,052, which is just $2 away from the dataset’s record notched in August 2022.
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The 0.7% increase also represents an acceleration in pace from July, when prices rose by less than half of a percentage point. The increase is concerning as the Federal Reserve has been pushing hard to tamp down inflation with historic interest rate increases for more than a year.
Rising house prices and rents have further strained the bank accounts of consumers who are being hit by much higher prices since the pandemic took hold. The latest median rent number is slightly lower than a year ago, when inflation was peaking.
“But longer-term views show that prices continue to be elevated well above pre-pandemic levels,” the report reads. “Over two years, rents have grown by more than 12%, and over three years by more than 18.5%. Annualized growth over each of those periods is more than 6%, well above historical norms. Over the course of the pandemic, prices have risen by more than 25%, adding over $400 to monthly rent bills since 2019.”
Higher rents have fed into the surging inflation of the past two years — rent makes up about 7% of the consumer price index.
The consumer price index data for August showed overall inflation rose to a 3.7% rate for the year ending in August, the second consecutive increase after a full straight year of declines. Annual inflation was at its lowest level in June, clocking in at 3%.
The highest year-over-year rental price growth was notched in the Midwest, although rents in that region remain the most affordable in the country, with the median price hovering at $1,434.
Mortgage rates have also soared in recent months as the housing market reacts to the Fed’s barrage of interest rate revisions and the potential for perhaps another rate hike this year.
As of Thursday, the average rate on a 30-year fixed-rate mortgage was 7.12%, more than double the average before the Fed started raising interest rates, according to Freddie Mac. Mortgage rates recently peaked in August and were the highest they had been in more than two decades.
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The Fed’s next decision on interest rates will come after a two-day meeting of central bank officials later this month.
An overwhelming 97% of investors think the Fed will hold rates steady at its next meeting in September, according to CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed. But some 32% think the Fed will hike once more at its November meeting.