Staffing Industry Playbook

Housing Market: Persistently High Housing Prices Are Hindering More Expeditious Disinflation

• Persistently high housing prices are the primary contributor to inflation today.
• High mortgage rates and low housing starts are driving imbalances in supply and demand.
• Housing prices take time to respond to monetary policy and will exhibit further disinflation as interest rates remain elevated.

Housing inflation remains the single greatest contributor to price growth today. Aside from usually accounting for almost 40% of the consumer price index and 20% of the personal consumption expenditures price index, high mortgage rates—as well as low levels of single-family housing starts relative to multifamily starts—have enabled demand to outpace supply, engendering a persistent acceleration in prices. However, housing inflation continues to moderate, albeit slowly, given an increase in construction as well as tepid increases in demand. Unfortunately, housing moves more slowly relative to other services, which means these changes could take months to appear within new estimates of inflation. These dynamics have not prompted the Fed to postpone interest rate cuts altogether, but they may support a long-term course for monetary policy that keeps interest rates higher for longer.