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Owners' Equivalent Rent

By Anonymous

Owners' equivalent rent (OER) is a major component of CPI (23.8% of CPI, see Cleveland Fed), and even though rents are falling in most areas, OER is still increasing (up 2.1% Year-over-year and up 1.8% annualized in May).

For a discussion from the BLS of rent measures see: How the CPI measures price change of Owners? equivalent rent of primary residence (OER) and Rent of primary residence (Rent)

The expenditure weight in the CPI market basket for Owners? equivalent rent of primary residence (OER) is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence:

?If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities??

So far owners believe that rents are still increasing.

The following graph shows the year-over-year (YoY) in the REIT rents (from Goldman Sachs), Owners' equivalent rent of primary residence and Rent of primary residence (both from the BLS). The Apartment Tightness Index from the National Multi Housing Council is on the right Y-axis.

Click on graph for larger image in new window.

This graph shows that the Apartment Tightness Index leads REIT rents, and that the BLS measures of rent follow.

This suggests further declines in the YoY REIT rents, and future disinflation for the BLS measures of rent.

Full post as published by Calculated Risk on June 17, 2009 (boomark / email).