Rent Increases Lag Inflation Rate

Interest Rates: Interest rates aren’t moving much – which may not matter much, because hardly anyone is lending money to anyone, for anything. The most recent meeting of the Federal Open Market Committee didn’t result in a change in the federal funds rate or the cost of money generally. But with the capital markets in flux, it appears that many, if not most, lenders are sitting on what money they have and waiting things out. Building Materials: Building material prices are, for the most part, holding fairly steady. Cement and softwood lumber are up slightly, and plywood down slightly. But gypsum shows a nearly 5 percent rise –larger than any in the past year. The category of All Materials and Components for Construction has risen in steady, small increments for the past 19 months. But the rate of rise has been increasing – for each of the last five months it’s been greater than 1 percent. The prices for finished goods, however, have stayed relatively stable, which could mean that manufacturers are absorbing much of the rising materials cost for now.Median Condo Price: The median price of an existing condo isn’t showing much movement. For the past four months it’s hovered in the low $220,000s, having climbed back from four months in the teens – a range of $211,800 to $219,600. It appears that people who have to sell are selling, and people who don’t have to sell are holding on in hopes of higher prices – and some well-located, appropriately priced properties are selling to buyers with ready funds. It’s too soon to say that condo prices have hit bottom, but four months of stability is better than four months of falling prices.Rent Changes: The Consumer Price Index rose again last month by more than 5 percent—reflecting rising energy and food costs, for the most part, as well as stagnant wages. The rental component rose as well, but, as has been the case for the past 10 months, it rose more slowly than the CPI as a whole. It’s difficult to ask renters to pay more rent when the cost of everything else keeps moving upward.Multifamily Starts: You can’t start building a multifamily community without money, and lately, the capital markets are much less willing to lend. The reconstituted Fannie and Freddie remain committed to their multifamily lending programs, but tight capital and the current large overhang of vacant units, both for-sale and rental, will result in a trend toward falling starts numbers for the foreseeable future – NAHB’s current forecast says late 2009. Of projects that are starting, the vast majority are rental communities. To comment, contact Keat Foong at