As the job market significantly improves, more and more young people are moving out of home and most of them are choosing apartments. This has pushed available rentals to the lowest level in twenty years, simultaneously pushing up both construction and rental costs. This has already caused a boost to economic growth pushing inflation slowly towards the target “ideal” two percent rate wanted by the Federal Reserve.
According to Commerce Department reports, new housing construction rose to a 1.17 million annualized rate in June 2015, which is the second highest since November 2007. Work on nearly 500,000 new multifamily units, the most since 1988, together with increasing rents for apartments, are having a significant impact on the consumer price index.
The housing market and its related industries are now one of the main inflation divers and there is no end in sight to the boom as yet. Applications for both single and multifamily new project building permits continues to rise with the number of permits issued up by 7.4 percent to an annualized rate of 1.34 million, higher than at any point since July 2007.
Is Two Percent Inflation Achievable?
In order for inflation to reach the two percent goal set up by the Fed, the housing and renting indexes cannot be the only things rising. The consumer-price index climbed 0.3 in June, down from a 0.4 percent rise in the previous month. About two-thirds of that increase was caused by rising home and rent costs.
Rents of primary residences and owner occupied homes climbed 0.4 percent last month, helping the inflation rate along. However, with oil prices depressed along, with most other commodities, some of these segments need to start to recover, or there is no way to meet the inflation target.
With most Americans still looking beyond their borders and seeing nothing but potential economic turmoil there is little chance that consumer confidence will return anytime soon. Add in, that many still are not confident that the banking system and economy is fully secure, there is a distinct lack of enthusiasm from consumers to start spending freely again, which could spoil the Feds plans.