Affordable? Home Rents Increase To 2.7 Percent YoY While Wage Growth Is 2.1 Percent YoY

I attended Fannie Mae’s Affordable Housing Advisory Council meeting on April 15th as a member. We were asked not to disclose what was discussed, but suffice it to say that the name “Affordable Housing Council” kind of gives it away.

In general terms, the “credit is too tight” theme was discussed by affordable housing advocates (not Fannie Mae management). Needless to say, I chimed in with the following chart showing that potential borrowers are worse off today than in 2001 or 2007 making it difficult to qualify for a mortgage according to DEBT TO INCOME (DTI) requirements in the face of rising home prices.


But that only addresses the home ownership part of Fannie Mae’s business. What about their multifamily operations?

Well, the Consumer Price Indices for March were released today and the US CPI Urban Consumers Owners Equivalent Rent of Residences YoY rose to 2.7 percent. While this seems modest, bear in mind that average wage growth is only 2.1 percent YoY.


Then we have New York Ciy where The median rent in Manhattan jumped 8.9 percent last month to $3,375, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Costs for studio apartments climbed 10 percent to a median $2,351, while rents for one-bedrooms rose 9.4 percent to $3,400, both the highest in more than seven years of record-keeping.

Nationally, apartment rents are growing at a 3.5 percent clip, according to REIS.

Let’s see. Super low interest rates combined with investors (foreign and domestic) coupled with households that are priced out of home ownership have created … high rents. If Jimmy McMillan of “The rent is too damn high Party” would run for mayor or governor today ….

So, Houston (or Washington DC), we have a problem. The CPI measure of “rent” is too low compared to observed rents. Home prices and apartment rents are rising faster than wages. Either wages have to start rising more than they have or home prices (and apartment rents) have to drop.

Here is what COULD cause home prices to fall. Baby-boomers are retiring and the GenXers and recent immigrants from Latin America don’t have the accumulated wealth or wages to purchase some of mondo-expensive big homes that America has grown accustomed to.

So, only mentioned my concerns about the housing market, wages, and the baby-boomers.

Or what I may call “Baby KABOOMERS.”

Here is a picture of Janet Yellen and Ben Bernanke injecting a typical renter with Fed stimulus that helps rents to rise and wage growth to stagnate.