March 3, 2023

Housing Inflation

About 24% of the value of all those goods and services that make up the consumer price index (CPI) — which is what the Bureau of Labor Statistics measures every month to calculate inflation — is linked to something called owners’ equivalent rent.

Looking back at last week's CPI release, housing continues to drive US core inflation...

Source: The Daily Shot

Now since we know where a large majority of inflation is coming from, let’s look and see where the Zillow Observed Rent Index, Apartment List and the BLS New Tenant Repeat Index are forecasted from March 2023 to September 2023. All three are pointing to lower rents in the months ahead.

As we head into the summer, these numbers will be worth watching. If rents begin to drop, this should cause the CPI to cool and allow the Federal Reserve to pause raising interest rates.

For now, we are finding opportunities within the Investment Grade Corporate Bond Market with 3-5 Year Maturities yielding over 5% and value stocks with 2.5% plus dividend yields.

If the authorities succeed in engineering higher nominal economic growth- commodities, infrastructure, cyclical and growth stocks should outperform, as well as emerging markets.

We will keep you informed with fast market conditions on where we are seeing opportunities.

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