Daily Real Estate News  |  July 19, 2007  |   Is the Cost of Homeownership Taking a Breather?
A slowdown in the rising cost of homeownership could be a persistent feature of the economy, according to research by the U.S. Bureau of Labor Statistics (BLS).

In producing the consumer-price index, the BLS measures homeownership costs by estimating how much a homeowner would receive for renting out his home. Owners’ equivalent rent or OER makes up 24 percent of the consumer price index.

The government also measures rents actually paid by people who rent by sampling thousands of rental units across the country. Most of the time, actual rents and OER are about the same. But sometimes they diverge and that’s what is happening now. In the 12 months through May, rents rose 4.4 percent and OER rose 3.5 percent.

An unpublished study by the BLS suggests that the reason is a difference is the way the Bureau calculates rents in renter-dominated neighborhoods in cities, giving them more weight. But others argue that vacancies in owner-occupied homes are up and this is restraining growth in rents in areas where there is a lot of owner-occupied housing.

If that’s true, then economists believe the condition could persist, encouraging the Federal Reserve to hold off worrying about inflation. "It's something that, behind closed doors, has got to be making them more confident that the improvement in core inflation can be sustained," says David Greenlaw, economist at Morgan Stanley.

Source: The Wall Street Journal, Gregg Ip (07/18/2007)