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HomeMarketHousing Costs Are Still Hot. Where Rent Prices Could Be Headed.

Housing Costs Are Still Hot. Where Rent Prices Could Be Headed.

Asking rents continue to soften.

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Joe Raedle/Getty Images

Housing costs remained a significant driver of inflation in January—even as other data show asking rents on new leases continue to slow.

The consumer price index rose a seasonally-adjusted 0.5% in January, the Bureau of Labor Statistics said Tuesday. The index was an unadjusted 6.4% higher before seasonal adjustment, a greater gain than the 6.2% increase expected by
consensus estimates. 

One driver of that was housing costs. Shelter, a broad category that includes rent and rent equivalents, as well lodging away from home and household insurance, gained 0.7% from the month prior. “The shelter index was the dominant factor in the monthly increase in the index for all items less food and energy, while other components were a mix of increases and declines,” the BLS wrote in Tuesday’s release. 

A reading of 0.7% is relatively high historically. Before 2022, the last time shelter costs gained as much on a month-over-month basis was in the early 1990s. Shelter costs have now increased 0.7% or more month-over month in five of the past six months, according to BLS data. The index subcategory gauging the cost of renting a primary residence also gained 0.7% month-over-month.

The still-hot reading on housing services was likely of little surprise to investors. Federal Reserve Chairman Jerome Powell has said he expects housing services pricing to remain hot as earlier price increases continue to work into existing leases. “In the housing services sector we expect inflation to continue moving up for a while but then to come down, assuming that new leases continue to be lower,” the chairman said in an early February statement.

As of January, asking rents for new leases continued to soften, according to Zillow’s Observed Rent Index. The typical asking rent in January was $1,970.24, according to Zillow’s index, representing the fourth month-over-month decline in a row. On a year-over-year level, January’s rent gained 6.9%—the slowest such increase since May 2021. 

For those watching the housing market, the data release’s impact on mortgage rates may be of more interest. Mortgage rates in 2023 have largely fallen after hitting multiyear highs above 7% in late 2022. Last week’s average mortgage rate was 6.12%, according to
Freddie Mac,
representing a drop of 0.3 percentage point from the final reading in 2022. 

Recent lower mortgage rates may have drawn some prospective buyers back into the housing market. Pending home sales, a National Association of Realtors measure of contract signings that is a leading indicator of future existing-home sales, gained for the first time in six months in December, while refinance and purchase applications have increased recently, according to the Mortgage Bankers Association.

Black Knight
on Monday said rate lock volume increased in January, the first following a nine-month string of declines—though seasonal patterns mean such an increase was expected, said Kevin McMahon, the president of Black Knight’s Optimal Blue division. “Mortgage originations continue to face significant rate, affordability and inventory headwinds, and lock volumes are still down more than 60% from the comparable period last year,” McMahon said in a statement. “With rates picking back up in early February, it will be interesting to see whether the rebound in lock activity will hold.”

Freddie Mac’s Primary Mortgage Market Survey, released weekly on Thursday, could give investors a look at how the Consumer Price Index influenced mortgage rates this week. Investor reactions to economic reports such as the CPI can impact mortgage rates as market participants factor the data into their economic expectations. The 10-year Treasury yield, with which mortgage rates often move, was roughly 0.05 percentage point higher on Tuesday morning.

Write to Shaina Mishkin at


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