Key Takeaways: This morning we were on the Macro Show with Hedgeye Director of Research, Daryl Jones. Given the firm's call on inflation, we explored the contribution of rent to overall CPI, and implications for the REIT sector. Hey highlights as follows and link to slides below:
- Rent comprises an ~8% weighting in overall CPI and a ~25% weighting in the Housing component. However, it is probably under-represented given that the government itself reports rented properties as comprising over 33% of the occupied housing stock. Just from that, and excluding any other reporting biases, it is fair to assume a fairly large delta between reported and actual rent inflation experienced by consumers in aggregate
- Rent was up +1.8% Y/Y in May as part of the overall +5% CPI print
- Leading indicators of overall rental rate inflation, namely the rates at which new transactions are being executed today, are back above pre-COVID trend levels led by sharp recoveries in the Coastal Gateway markets which led prior declines (we focus on multifamily apartment rents here)
- New York, for example, is trending up in the high-single-digit percentage range Y/Y in June - peak base effects will occur in Dec./Jan., so it is fair to assume that rent inflation will accelerate into EOY
- As it relates to the REITs, need to separate cyclical recovery names from secular trends (migration and population growth across the Sunbelt) in picking stocks
Please call or e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
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