That’s inflation in the cost for shelter. It doesn’t take into account the rising value of homes themselves.
Housing inflation, as measured by the government, will likely jump to 6.5% to 7% this year, according to Harvard economist Larry Summers.
That compares to an increase of about 4% for the 12 months ended in January.
The former Treasury secretary made the forecast in a working paper along with Marijn Bolhuis, an economist at the International Monetary Fund, and independent researcher Judd Cramer.
These numbers, of course, pale in comparison to the 20% increase Zillow estimated for home prices in the 12 months through January. That’s because the government estimates what people are paying for shelter, not what their homes are worth.
For homeowners the government looks at what the rental rate would be for their properties, and it’s the increase in that rate which determines the shelter-price increase for owned homes. For renters, the government simple uses rent prices.
The ascent in shelter costs will likely add 2.6 percentage points to the core consumer price index this year, Summers and his co-authors estimate. The core CPI soared 6% in the 12 months through January.
Why Are Things So Affordable?
Homes already have become unaffordable for most people who aren’t wealthy. According to the latest study by real estate portal Point2 Homes, Generation Z (up to age 25) currently can’t afford a median home in any of the country’s 100 largest counties.
While the situation will likely turn around for Generation Z, millennials aged between 25 and 44 also can’t afford a home in 66 out of the country’s largest counties. At 30, Generation X (people aged between 45 and 64) are currently in the best position.
Baby boomers are rapidly sliding into affordability problems. If those over 65 haven’t yet bought a home, they’ll find that purchasing one will be unaffordable in 89 of the country’s 100 largest counties.
