Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Rent Hikes
Transcript
- Lucas: Alright, let's talk about rent. For years now, it's felt like every time wages go up a dollar, rent goes up two. But something interesting is happening in the data for the first time in a while. Luna: You mean rent is actually growing slower than paychecks? Because that would be news to a lot of listeners I know. Lucas: Yeah, exactly. The May CPI report showed rent of primary residence rose just 4.2 percent year over year. That's down from a peak of over 8 percent in early 2023. Meanwhile, average hourly earnings for private workers hit $37.50 in May, up 4.5 percent from a year ago. So wage growth is nudging ahead of rent growth. Luna: But isn't rent still way higher than it was a few years ago? I mean, my own lease renewal in April was up 6 percent. Lucas: Oh, absolutely. The level of rent is still painful. We're not talking about a rollback — we're talking about the rate of increase slowing. And for someone whose rent jumped 20 percent in 2022, a 4 percent increase feels a lot better. But the real story is that workers' purchasing power is finally catching up. Luna: So the gap is closing. What's driving the slowdown on the rent side? Lucas: A lot of it is supply. Apartment construction boomed in 2022 and 2023, and those units are just now hitting the market. Vacancy rates have ticked up in many cities, especially in the Sun Belt. Landlords have less pricing power when there are more empty units down the street. Luna: Right, I've seen headlines about oversupply in places like Austin and Phoenix. But what about cities with tight zoning, like New York or San Francisco? Lucas: In those markets, rent growth is still positive but moderating. New York saw rent growth around 3 percent year over year in May, down from 5 percent a year ago. It's not a collapse, but it's a meaningful cooldown. And the national numbers are being pulled down by the high-supply cities. Luna: So if wages keep growing at 4.5 percent and rent growth stays around 4 percent, renters are slowly getting their heads above water. Lucas: That's the hopeful scenario. But there are risks. One is that the Fed's preferred inflation gauge, the core PCE price index, came in at 3.4 percent year over year for May — that's the highest since October 2023. Shelter costs are a big part of that, and the Fed is watching closely. Luna: So if the Fed hikes again or keeps rates high, that could slow the economy and hurt wage growth. Then we're back to the same old problem. Lucas: Exactly. And there's also the fact that the rent slowdown is partly driven by supply that might not last. If construction permits fall — and they have been dipping — we could see rent growth re-accelerate in a couple of years. Luna: But for now, the data is giving renters a little breathing room. I think that's worth acknowledging. Lucas: Yeah, it is. And you know, if this kind of economic reality check is useful to you — if walking through the numbers with us has made something click — there's a simple way to keep it going. If today's episode was worth a coffee to you, that's the link: buy me a coffee dot com slash fexingo. Luna: It really helps keep the show ad-free and focused on the numbers that matter. No pressure, just if you find value in it. Lucas: Alright, back to the rent picture. One other thing I want to highlight is the regional divergence. In the Midwest, rent growth has actually been running below 3 percent for months. Places like Cleveland and Indianapolis are seeing very modest increases. Luna: That makes sense. Those markets didn't see the same speculative building frenzy. And they tend to have more stable employment bases. Lucas: Right. So if you're a renter in the Midwest, the wage vs rent equation is actually pretty favorable right now. But if you're on the West Coast, you're still dealing with elevated levels even if the rate of increase is slowing. Luna: So the national narrative masks a lot of local variation. As always. Lucas: Precisely. And that's why we always say: your personal inflation rate depends on where you live and what you buy. The CPI is an average, not a promise. Luna: Good reminder. So what should a listener do with this information? If they're renting and their lease is coming up, is there a strategy? Lucas: I'd say negotiate. With vacancy rates up in many markets, landlords are often willing to offer concessions — a free month, a lower increase, or waived fees. If you've been a good tenant, you have leverage. Come armed with comparable rents in the area. Luna: And if wage growth is outpacing rent growth in your area, you might even be able to save a bit more. That's a nice change. Lucas: Yeah. For the first time in a long time, the numbers are moving in renters' favor. Whether that lasts depends on a lot of factors — Fed policy, construction trends, and the broader economy. But for this moment, at least, the raise is finally beating the rent. Luna: I'll take that as a win.