NEW YORK – As U.S. home purchases slow, an expected rise in demand for rentals will result in a spike in inflation, analysts say, citing studies showing housing costs have been under-reported by the government.
The concern about a sudden gain in inflation centers on how much the record low interest rates have fueled the housing market since the economy softened dramatically nearly four years ago and how the rental market has softened as a consequence of so much home buying.
The worry now is that as the economy regains its footing and rates rise to keep inflation in check, would-be home buyers will instead look in the rental market.
All these concerns relate to the government’s broadest inflation gauge, the consumer price index, which some analysts say has understated the true cost of housing because it more closely analyzes rents as opposed to home purchase prices.
“It’s clear to me that the reported CPI (housing) metric is artificially restrained,” said Richard DeKaser, chief economist at National City Corp. in Cleveland, Ohio.
Housing costs — a reflection of what the CPI survey refers to as “owners’ equivalent rent,” make up 25 percent of the CPI and are the index’s biggest component.
For this complete story, please visit A Slowing US Housing Market May Heat Up Inflation.
