Shelter prices rose 0.4% in May, according to key inflation data from the latest CPI (Consumer Price Index) print, rising 5.4% year-over-year. As housing is a significant contributor to US inflation, does this data shift the tone around the US housing market and the Federal Reserve's own interest rate policies?

Zelman and Associates CEO Ivy Zelman has found that "multi-family rents are re-accelerating and single-family rents are firming," commenting on how the Fed could be interpreting this fresh inflation data.

"The real weakness in the market has been pronounced in existing home turnover, which in fact is starting to, what we thought was bottoming and improving is actually starting to turn more concerning and declining, given the backup and rates and affordability constraints," Zelman explains.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Luke Carberry Mogan.

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Video Transcript

Shelter inflation rose 4/10 of a percent in May, the biggest single contributor to the increase in core consumer prices.

Now, the Shelter index rising 5.4% over the last year.

That is two thirds of the 12 month increase in the fed's preferred inflation gauge.

This data is just the latest example of how critical housing prices are to the overall inflation picture here.

So we're going to discuss this with our next guest.

We have Ivy Zelman.

She is the CEO of Zelman and Associates Ivy.

It's great to speak with you.

Thanks for joining us when you look under the hood of today's data.

What story is it telling us about the inflation outlook specifically for Shelter that we might be missing here.

Well, overall, thanks for having me.

But overall the deceleration is um started to become more obvious in the numbers that we had been seeing in 2023.

Back half of 23 was very pronounced.

We saw actually negative new move in rates um for multifamily and deceleration in single family rental.

But interestingly right now, even though we're seeing slight deceleration, the more important um I think note, I want your viewers to understand is that multifamily rents are re ael and single family rents are firming based on according to our surveys that we do of owners and operators, which is definitely not what the fed wants to hear.

So, I mean, so what ultimately then does this mean all for the housing market, the rebound that maybe we are expecting or many are hoping to see in terms of that activity is that going to take longer to take place?

And then ultimately, the impact that, that we will see on pricing for the longer term too.

Well, if you're referring to multifamily multifamily starts have been under tremendous pressure given the backup in rates.

And we don't expect that to really turn around anytime soon.

The single family market has been accelerating for new construction.

The real weakness in the market has been pronounced in existing home turnover, which in fact is, is starting to, um what we thought was bottoming and improving is actually starting to turn more concerning and, and declining given the backup and raises and affordability constraints.

So affordability is really challenging and we're starting to see that um, show up based on the work that we're doing.

So I, I do wanna bring it to the Fed Ivy because I guess what I wanna know is, is the CP I data that they are looking at today and moving forward, is that an accurate picture of what you are seeing on the ground in the housing market.

And from what I'm looking at, in terms of some of the commentary out there, I could argue in either direction, some data showing that people sign your lawn leases is there, there's a lag time in rent, meaning it could be higher than what we're seeing in CP I.

Others saying that that could be the, the opposite that what we're seeing in CP I is actually underestimating just how cool prices have gotten.

If you were talking to Jay Powell today, just to put a button on this long question.

What would you tell him about housing inflation?

I'd say that housing inflation reflective in the CP I is usually lagging according to our data about four months.

And generally, because turnover in uh rents tends to be for multifamily kind of in the 40% range, single family people turn 25 30%.

What they're showing is that renewal rates are, are still sticky and because renewal rates are sticky.

Um What we hear in most data is reflected is new home rates which are not really indicative of the market.

So I'd say that JP L needs to be concerned that the market is firming and re accelerating.

All right, Ivy, we're gonna have to leave it there, but really appreciate you joining us.

That was Ivy Zelman.

Zelman and Associates CEO