There are only 29 days remaining until the Center for Disease Control’s moratorium on evictions expires.
Unfortunately, the Center on Budget and Policy Priorities (CBPP) estimates there are roughly 11 million people behind on their rent — plus another 6.4 million homeowners delinquent on their mortgages — who could soon potentially be at risk of eviction and homelessness.
Source: CNBC, CBPP
In total, that 11 million figure constitutes a full 15% of the adult renter population, highly leveraged toward southern states, minorities and families with children.
And despite Federal aid being targeted specifically at delinquent renters, states have had tremendous difficulty getting the money in their pockets.
New York, for instance, had pledged to hand out over $100 million in back rent payments. But as of October, the state had only issued 40% of the funding.
So while aid technically remains available to many, finding it continues to be a struggle for affected families.
And the overarching worry is that inflationary pressures on food and other commodities are going to outpace any aid received.
I talked about this very idea — called the Cantillon Effect — all the way back in August.
At the time, I wrote, “any change in relative prices occurs because the change in money supply has a specific injection point and therefore a specific flow path through the economy. The first recipient of any new supply of money — in this case, wealthy people and corporations — is in the convenient position of being able to spend this money before prices have increased.”
“But whoever is last in line — in this case, the middle and lower classes — receives their share of this money after prices have increased. That means the Fed should be monitoring a heck of a lot more prices than the “basket of goods” that comprises the Consumer Price Index.”
Well, with unemployment improving, jobs ramping up, adults getting vaccinated, businesses reopening and governments continuing to spend, I proposed back in May that we would very soon see this data show up in rent.
So, imagine my surprise to log into the computer today, only to see this chart cross my feed.
Source: Apartment List
Cities most affected by the pandemic — San Francisco, New York, Boston and Chicago — are beginning to see rents surge.
And at their current pace of increase, most of those cities are going to see rents back to pre-pandemic levels by the end of the year.
Source: Apartment List
And at a time where transfer payments from the government comprise 22% of U.S. income in April…
Source: Apartment List
And just at the time all that Federal aid begins to dry up, searches for housing-related topics are moving up to seasonal multi-year highs.
Source: Arbor Data Science
While landlords expect to be able to charge more rent in a year’s time.
Source: Arbor Data Science
The point here is simple. The largest component for what the Federal Reserve views as “inflation” — the Consumer Price Index — is “Shelter,” and we’re coming off of multi-year lows.
Source: FRED, Seawolf Research
Multi-year low comparisons plus huge inflationary pressures mean that this number is going to get really high, surprisingly quickly.
And while that’s good for our stake in the Real Estate Select Sector SPDR Fund (NYSEArca: XLRE), it’s not very good for all these renters.
That number tells me that even those who can find aid, jobs and afford the rent increase on their new places are going to struggle to keep their heads above water.
What about those who can’t?
Well… That’s awfully hard to think about.
All the best,
Matt Warder