Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Raise Is Finally Outrunning Rent Prices
Transcript
- Lucas: So here's something that, honestly, I wasn't sure we'd get to say this year: for the first time in about three years, your raise is now officially outpacing your rent. Luna: Wait — really? Because every time I look at my own lease renewal, it sure doesn't feel that way. Lucas: I know, and that's the thing — national averages can hide a lot of pain in specific markets. But if you step back and look at the May data, average hourly earnings hit $37.50, up about 4.1 percent year-over-year. Meanwhile, the CPI shelter index — that's the government's measure of rent and owners' equivalent rent — rose just 3.8 percent. Luna: So we're talking about a three-tenths of a percentage point spread. That's not huge, but it's a reversal from the last few years when rent was consistently running two or three points above wage growth. Lucas: Exactly. And the direction matters more than the magnitude right now. For most of 2022, 2023, and even into 2024, rent was growing at 6, 7, sometimes 8 percent annually, while wages were stuck around 4 or 5. That squeeze was brutal. Now the gap has flipped. Luna: What's driving the deceleration on the rent side? Is it just more supply finally coming online? Lucas: That's a huge part of it. We've had a record wave of multifamily construction over the past two years, especially in Sun Belt markets like Austin, Phoenix, and Nashville. A lot of those buildings are hitting the market now, and landlords are having to offer concessions — free months, lower asking rents — just to fill units. The national vacancy rate for apartments ticked up to about 6.2 percent in Q1, which is the highest it's been since 2020. Luna: And on the demand side, remote work stabilization probably plays a role too. People aren't flooding into high-cost cities the way they were in 2021 and 2022. Lucas: Right. The migration wave has cooled. Hybrid schedules mean you don't have to live within a mile of the office, so demand spreads out. Plus, with mortgage rates still elevated — the thirty-year fixed is around 6.8 percent — a lot of potential homebuyers are staying in rentals longer. That should push rents up, but apparently the supply effect is outweighing it. Luna: So for workers, this is genuinely good news. Your raise is going further toward housing than it has in years. But I wonder how durable this is. The ECB just hiked rates last week because of energy price spikes from the Iran situation. If that pushes global inflation up again, could rent gains reaccelerate? Lucas: It's possible. Rent inflation is sticky and tends to lag other prices. The bigger risk is if the Fed feels forced to respond to a broader inflation uptick — though they've signaled they're on hold for now. But even if core CPI came in at 4.2 percent in May, the shelter component actually moderated. So the trend is your friend here, at least for the next few quarters. Luna: That's the kind of concrete number that helps — knowing that shelter is actually pulling the inflation rate down, not up. It makes the 4.2 percent headline less scary. Lucas: Exactly. And look, I don't want to overstate it. Rent is still high in absolute terms. The median asking rent nationally is around $1,700. In many coastal cities it's way higher. But the rate of change is finally moving in the right direction for workers. Luna: And that's what this show is really about — tracking whether the paycheck is keeping up with the bills. If walking through this data with us has made something click for you, I'll just mention that we deliberately don't run ads on these episodes. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small way to keep this independent and focused on what matters. So, back to the rent picture — let's talk about which workers are benefiting most. If you're in construction or logistics, your wage growth has been above average, around 5 to 6 percent. That means your rent to income ratio is actually improving. Luna: And for service workers — retail, hospitality — wage growth has been closer to 4 percent, so the margin is thinner. But still, even a small positive spread is better than what they've faced for years. Lucas: Right. And the regional variation is striking. In Austin, rents have actually fallen about 2 percent year-over-year. In New York, they're still up 3.5 percent. So if you're a renter in Austin with a 4 percent raise, you're genuinely ahead. In Manhattan, you're treading water. Luna: That's a good reminder that averages smooth over a lot. But I think the big takeaway is that the structural forces — more supply, cooler migration — are finally giving workers a bit of breathing room. The question is how long it lasts. Lucas: And we'll keep watching it. For now, it's one of the few genuine bright spots in the cost of living picture.