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Lawler: Is the “Owners’ Equivalent Rent” Index Set to Accelerate Sharply?

From housing economist Tom Lawler:

While single-family home prices have recently soared and single-family rents appear to have accelerated, the “Owners’ equivalent rent of primary residence” index (OERPR) of the Consumer Price Index has shown no meaningful acceleration. The YOY gain in the OERPR in April was just 2.04%, about the same as in the previous three months.

The OERPR index attempts to measure what property owners would receive if they were to rent their home. While the “Rent of primary residence” index mainly (though not solely) reflects rents on multifamily properties, the OERPR index mainly (though not solely) reflects “imputed” rents on single-family homes. There are many issues with how the OERPR in calculated (there is an extensive literature on the subject), and many feel that that it is a lagging indicator of trends. However, it would appear as if (1) the OERPR is understating this measure of housing costs; and (2) the measure is likely to accelerate, probably significantly, during the remainder of the year.

The OERPR represents a little over 23% of the overall CPI and a little underx. 14% of the PCE price index.

CR Note: This will be something to watch.

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