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Rising Rental Rates Defy Cooling Inflation Trends as CPI Reports

The latest Consumer Price Index (CPI) report, released May 15, 2024, indicates that inflation has cooled a bit, but rising rental rates are still present. The overall inflation rate has shown signs of deceleration, with the CPI increasing by only 3.4% from the previous year, with a small 0.3% increase for April compared to the previous month’s 0.4% rise. However, the cost of shelter, especially rents, continues to rise, placing a significant burden on housing affordability for millions of Americans.

Inflation Pushed Up by Rising Rental Rates and Other Housing Data

The shelter component of the CPI, which includes both rent and homeowners’ equivalent rent, saw a 0.4% increase in April. Shelter costs experienced a 5.5% rise over the past year, marking the most moderate annual increase since June 2022 and a decline from the peak of 8.2% in March 2023. Despite the deceleration in the pace of rent increases, rising rental rates and overall housing stats remain a big factor contributing to inflation.

Bright MLS Chief Economist, Lisa Sturtevant comments on this when she stated, “We’ve been saying for a long time now that inflation is remaining stubbornly elevated, and this report provides additional evidence that consumers are increasingly pessimistic that inflation is coming down soon. While consumers are facing higher prices at the pump, high housing costs also continue to be a main driver of the overall inflation numbers.”

CP Data Shows Elevated Rents but Actual Figures Could be Higher

The CPI report shows a rise in rent prices to a certain level; however, actual figures might be even higher – surveys may not be capturing recent rent surges. The issue is that CPI follows a sample of houses and asks for rent information every six months. This means that the data on rent prices can be significantly lagged, as it may take up to 18 months for the full impact of rental price changes to be reflected in the CPI data. This lag occurs because rent prices are typically updated on an annual or biannual basis, and the CPI’s six-month data collection cycle can result in a delay in capturing the full extent of rent price changes.

EJ Antoni, a research fellow in The Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, points out the possibility of a discrepancy in his post on X:

Real Estate Investors Benefit Financially from Climbing Rent Prices

Those already in the rental real estate market are currently benefiting from the upswing in rates. This is especially true for those investors who have residential rental properties in high-demand areas. When the demand for rental properties becomes higher than the number of rentals available, landlords are in a position to adjust their rental prices to reflect inflation and the market data.

Related Article: Why Rental Properties are a Safe Investment During Times of High Inflation

Increased rent on a property can lead to multiple financial benefits. It enables the investor to align with the escalating costs of inflation as well as property taxes. Additionally, the extra revenue generated can be invested back into the property through upgrades or maintenance, possibly drawing in more desirable tenants and enhancing the property’s value over time. The bottom line is that with increased rents, investors will receive more monthly income on their properties, which will increase their ROI and overall net worth.

Climbing Rental Rates Pushing Investors to Buy Before Property Prices Rise

Real estate investors are entering the market in order to capitalize on rising rental rates. For many, the monthly cash flow from rent checks is the driving factor behind their plan to acquire a property, and with rents on the rise, it’s a good time to move forward. In addition to this, buying now allows investors to gain a piece of real estate before home prices go up, as well as take advantage of increased equity gains when housing prices do rise further.

Owning a rental property is a wise investment choice at this time because as rent prices increase, it serves as a hedge against inflation. Not only that, but it also serves as a way for investors to lower their tax burden, sometimes owning zero to the IRS.

Related Article: Why Investing in Real Estate is a Smart Strategy for Building Wealth

Those interested in owning a cash flowing rental property can contact Morris Invest, a full-service investment company specializing in new construction properties in high-demand locations. The team at Morris Invest can take care of all the details for you. This includes obtaining financing with one of the 200 banks we have a relationship with, as well as help you convert your underperforming 401(k) into a self directed IRA where the funds can be used to purchase a property. See our article titled – Why the 401(k) is a Bad Investment Vehicle to Retire On.

On top of all this, Morris Invest also places an experienced property manager and vetted tenant for you.

Feel free to book a call with our team if you’d like to connect to discuss your specific investing goals. You can also visit the Morris Invest & SDIRA Program Overview page for more information on what we offer our clients.

Grab a cup of coffee and dive into the following video that discusses the national debt that’s contributing to our inflation troubles:

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