by Howard Schneider
WASHINGTON (Reuters) – Throughout the year, Federal Reserve officials have hoped inflation would fall in part as U.S. housing prices slowed under pressure from rate hikes, expectations which have been verified so far.
The situation nevertheless turned around in September: the slowdown in the rise in property prices came to an end.
Analysts don’t expect this new trend to continue, with real-time rent data still pointing to a slowdown down the road.
However, the rise in housing costs was enough to slow disinflation over a month, and the trend will have to be reversed for Fed officials to remain confident in the return of inflation to its target. Core inflation has certainly slowed year-on-year, going from 4.3% in August to 4.1% last month, but housing has doubled month-on-month, going from 0.3% in August to 0. .6%.
“The overall picture is that the trend is still quite encouraging, but the struggle continues,” summarizes Olu Sonola, head of US regional economics for Fitch Ratings. “The rise in house prices this month was the main surprise, and these prices will need to fall sharply over the coming months for inflation to approach 2%.”
Surprising resistance to rate hikes in the housing market, housing prices, building permits and construction employment are cited by Fed officials as a possible risk to their outlook inflation.
The U.S. housing market, where regional variations, the construction pipeline, rents, single-family home prices, and interest rates all play a role in price dynamics, presents an uncertain trajectory.
“Activity in the housing sector has accelerated somewhat,” Jerome Powell, Chairman of the Fed, said at a press conference following the central bank’s policy meeting which s is held on September 19 and 20, although he expressed confidence that the new leases signed for apartments and houses would include smaller price increases than the previous year and would eventually moderate the price index of real estate as a whole.
In the minutes of this meeting, the possible risks of a surge in real estate prices were mentioned.
“Participants noted that housing demand was resilient despite higher interest rates; new housing construction was strong, partly reflecting the limited inventory of homes available for sale,” the minutes of the meeting said. meeting published Wednesday.
A STRONG HOUSING MARKET
Limited supply, perhaps linked to the reluctance of homeowners to move due to the high costs of purchasing a new home, is one possible reason for the continued rise in property prices.
Among the elements representing a risk to inflation, Fed officials mentioned in September “the effects of a strong real estate market.”
Since February, housing cost increases have never been as high as last month, and although the year-on-year increase has continued to decline, housing accounted for half of the overall monthly price increase in september.
Although it is unlikely that it alone will convince the Fed to raise rates in November, this factor could decide the central bank to keep its options open and revive uncertainty about the downward trajectory of inflation.
The rebound in housing costs has kept services inflation high, and “will keep the Fed in its restrictive stance and open to the idea of further rate hikes”, even if the central bank does not budge in November,” said Kathy Bostjancic, chief economist at Nationwide.
Investors continue to expect a pause in the Fed’s rate hikes in November, but have slightly revised upwards the chances of further tightening in December.
Some analysts believe that by then, rent disinflation will be in full swing.
“The decline in rent inflation for new leases means that this rent growth will decline quickly,” said Andrew Hunter, deputy chief U.S. economist for Capital Economics, who points out that the rent index for housing intended for a family calculated by CoreLogic fell quickly, while the data is considered a good leading indicator of the “housing” part of the CPI.
Although the data is delayed in time, “the direction of evolution (of these indicators) is quite clear”, for Andrew Hunter.
(Reporting Howard Schneider, French version Corentin Chappron, edited by Blandine Hénault)
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