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Kai Ryssdal: This might be an opportune moment to mention the phrase “lagging economic indicator.” That’s what the consumer price index is: a look back at the prior month’s data. In other words, it lags reality. Which in this case mostly means falling oil prices. But today, also includes other parts of the economy that are falling too. Today’s CPI was all over the place. Inflation at the consumer level is up 5.6 percent year over year. That’s a jump we haven’t seen since 1991.
When you do what the economists do — leave out food and energy costs — the rate’s a somewhat less hair-raising 2.5 percent. But if you do take out food and energy, make sure you include housing, as the Department of Labor does when it assembles its figures. Because home prices, as we all know, are plummeting. Down more than 7.5 percent year-over-year, according to the National Association of Realtors today.
We sent Marketplace’s Mitchell Hartman to figure out what gives.
Mitchell Hartman: Prices in this economy look a bit like seats on a Ferris wheel right now. One basket of things goes up; another comes down. To give you a sense, we’ve chopped $17,000 off the average single-family home in a year. But a bag of groceries that rang up at $40 last year, now costs about $250 more. This is not the way the economy usually works, says Patrick Newport. He’s a real estate analyst at Global Insight.
Patrick Newport: Generally housing prices tend to move pretty much in sync with inflation. But that relationship has been off for the past 7, 8 years, ever since the housing boom took off.
One reason home prices boomed is that it was actually pretty cheap to get into a new home, because of everything from low mortgage rates, to not needing a downpayment. None of that is true anymore, says Tim McBride, a broker at Realty Trust in Portland.
Tim McBride It’s not to say a free-for-all giveaway type of ability to finance. The programs coming in for a zero-down or an 80-10-10 or those kind of financing things, where you could put something together without any money at all, are gone.
And with interest rates rising, many people’s mortgage payments are going up. So how about renters? If it costs less to buy a home, maybe the owner can cut some slack on the rent? Not much chance, says Global Insight’s Patrick Newport.
Newport Demand for renting is going up, because people are being kicked out of their homes and they need a place to stay and they have to rent. And that drives up the price of rent.
And rent, or its mortgage equivalent, is one of the biggest items in any family’s budget, and a key component of the Consumer Price Index.
I’m Mitchell Hartman for Marketplace.
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