Quoting an executive from an apartment management company with properties in Ohio, Michigan and Florida: "Right now, landlords impose the most the market can bear. Due to our costs being at an all-time high, rent increases are aggressive. We've had horrific weather in our markets in Ohio and Michigan this winter, and in many of our buildings we've seen the cost of utilities go up anywhere from 67% to 300%." Further, the executive also stated "rent increases vary dramatically by market - but on average they've been anywhere from 5% to 10% this winter versus a norm of around 2% to 4% in recent years. She added that some of the increase ‘reflects markets that have been underpriced and where we can no longer live with it.’ Insurance, real-estate taxes, labor and maintenance costs are up as well -- and even with the heftier rent increases and cost-cutting measures ‘we barely keep pace.’ ‘For years we haven't been able to raise rents to the same degree that our costs went up. We're now playing a little bit of catch-up.’ She added she sees no evidence of an economic slowdown in terms of an increase in the number of evictions from people who can no longer pay rents…"
The St. Louis market has also seen rents rise amid a slower economy," from an industry executive in Missouri. ‘In our market, there is a shortage of needed housing. At the same time, there's been a strong seasonal surge in demand for apartment space this spring.’ The combination of the two factors have forced rents about 7% to 10% higher, compared to a normal rent increase of around 5%." She also associates the very strong market for rentals to the local housing market. "…the local real-estate market has since become so inflated that the latest round of interest rate declines have had no appreciable impact on the rental market. Interest rates are down, but it's still a seller’s market. There are no bargains in this market."
"In Minneapolis rent increases are in the 8% to 10% range." "In Minneapolis, the problem is a lack of new product and vacancy rates that are between 1% and 2%…We haven't seen much development in the last four or five years -- property tax rates of 20 cents on the dollar for rentals kept developers out. In fact, local rent increases have been in that range for the last three years. And rents could still go higher when landlords start to pass on the higher cost of utilities. It's still too soon. I haven't seen them pass it on yet, but it may still happen, " according to an apartment search firm.
"A Los Angeles apartment locator, who asked that his name not be used, said local rents ‘are through the roof’ -- stating that the local energy problems had a hand in forcing the increases."
It just doesn’t look like deflation to me, anything but. Instead, there should be enough signs of rising prices to keep an increasingly nervous bond market on edge. Actually, this is disturbingly reminiscent of the Japanese bubble economy from the late 1980s. While measures of consumer price inflation remained subdued, the true cost of living rose significantly. We follow these details closely because credit market investors have had a very strong predilection of looking only to data that supports their view of Federal Reserve rate cuts "as far as the eye can see," while ignoring considerable anecdotal evidence of heightened inflationary pressures. Hence, the marketplace is today extraordinarily vulnerable to an abrupt change in perceptions. One of these days there may be a Reality Check. And perhaps the ECB "sees the writing on the wall," no longer wants to "play the game," and is instead preparing for inevitable trouble. We think so. One thing is for sure, if U.S. rates continue to move higher there will be a significant decrease in mortgage-refinancings, with negative implications for financial system liquidity, consumer spending and the Great U.S. Credit Bubble.
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