Economy still at risk, especially magnified by housing costs driven by inflation & interest rates

Despite all the good news, there’s one giant, inescapable reason why people don’t feel like the economy is as good as it actually is. Rent, and housing generally, is still too damn high. See here: The Consumer Price Index came in at on an annualized basis. Meaning prices on the everyday goods and services you buy are about 3.3% higher on average than they were a year ago. Prices for some items are even going down , after executives realized their customers had enough of their pricing power shenanigans. If you take a look at “supercore” CPI — the unofficial reading that excludes food, fuel and the cost of renting or owning a home — the picture is even rosier. Supercore prices were up just 1.9% from a year ago, right in the sweet spot that virtually every central bank in the world is aiming for Unfortunately, real life doesn’t let us just close our eyes and make the cost of food, gas and rent disappear. Shelter costs — which include rent and an estimated cost of homeownership — were up 5.4% from a year ago. That’s a slight improvement from April, and far lower than their peak of 8.2% in March last year. (Before the pandemic, shelter inflation typically rose around 3.5% a year.) “It’s an 18-wheeler riding its brakes down a mountain. We know where it’s headed, but it’s a slow descent,” said Jay Parsons, an economist and head of investment strategy at Madera Residential, a Texas-based apartment developer. The monthly fluctuations in the CPI are just part of the complex housing puzzle. The CPI doesn’t weigh the cost of buying a home, which is at the moment. “The housing situation is a complicated one,” said Fed Chair Jerome Powell on Wednesday, in his typically understated style. “Ultimately, the best thing we can do for the housing market is to bring inflation down so we can bring rates down, so that the housing market continues to normalize.” It’s not exactly breaking news but: Housing supply is low, mortgage rates have been hovering around 7% for months, and home prices have continued to rise to all-time highs. All of those factors have coalesced into a sticky market where no one can afford to move and even fewer can afford to buy. And if you are among the lucky ones who manages to find a place you can afford, buckle up, because the costs don’t stop at closing.