About 40% of the Consumer Price Index (CPI) is comprised of shelter costs. Shelter comes in various forms but apartment supply/demand drivers are a big underlying factor in the direction of CPI. CPI gets a lot of attention from the Fed, the market, and anyone trading 2y UST notes. It’s the inflationary bell weather that everyone follows.
To put it simply, right now in the US we are experiencing the highest level of multifamily/apartment construction in 50 years. Nixon was in office and I was in grammar school the last time apartment construction data looked like this. In the next twelve months, nearly 1mm apartment housing units will come onto the market. Fed chair Powell might be talking tough vs. inflation today in his Congressional testimony but the facts are in: apartments have been the grower, but rents will head lower, and upcoming CPI inflation growth will be a lot slower.
CPI data in the coming months is set to fall, which will be a good thing for risk assets and probably not great for the US dollar.
#toomanyapartments
Source: EISI as of June 20, 2023
Richard Barrett
Chief Investment Officer
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