Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of Rent
Transcript
- Lucas: So Luna, I keep seeing headlines about how rents are still painfully high. But if you actually strip out the noise, there's a quiet story here: for the first time in years, the average raise is finally beating the average rent increase. Luna: That sounds almost too good to be true. I mean, every renter I know still feels squeezed every month. Lucas: Right, and I don't want to dismiss that. Rents did jump a cumulative twenty-plus percent between 2021 and 2023. But the numbers we just got, as of July, show that the pace has cooled dramatically. The consumer price index for shelter is up only about four and a half percent year-over-year, while average hourly earnings are up around five percent. Luna: So the gap is finally closing. But how much of that is actually rent slowing down versus wages just catching up? Lucas: It's mostly rent slowing down. New apartment supply has been flooding the market, especially in the Sun Belt. In places like Austin and Phoenix, asking rents have actually fallen a bit over the past year. And that's pulling the national average down with it. Luna: I saw something about that. Landlords are offering concessions again — a month free, reduced deposits, that kind of thing. Lucas: Exactly. And when you combine that with the fact that the employment cost index for wages is still climbing at a steady three percent clip, the rent to income ratio is easing for the first time since the pandemic. That's a big deal. Luna: For the average worker, what does that actually mean in dollars and cents? Give me a concrete example. Lucas: Take the median weekly earnings — that's about twelve hundred dollars a week as of early 2025. Now, based on current trends, that's roughly sixty-two thousand a year. If rent inflation is running at four and a half percent and earnings growth is at five percent, the typical renter is keeping a little more of their paycheck after paying the landlord. Luna: So it's not a huge windfall, but it's a genuine shift in the right direction. Lucas: And it's a shift that we haven't seen in nearly a decade. Remember, from 2015 to 2019, rents were rising faster than wages almost every single year. The pandemic made it worse. So this is the first real reversal in a long time. Luna: But I keep thinking about the people in high-cost cities. Is this playing out everywhere, or is it mainly in the places that built a lot of new units? Lucas: That's the catch. The slowdown is really concentrated in the South and the Mountain West, where there was a building boom. In the Northeast and parts of California, rents are still climbing, just not as fast as they were. So the national story hides some pretty big regional differences. Luna: So if you're renting in New York or San Francisco, you might not feel this much at all. Lucas: Right. And that's one reason why it's important to look beyond the headline CPI number. The overall index actually dipped in June — it's down slightly from the month before. But shelter costs are stickier. They lag behind what's happening in the market by several months. Luna: So the official CPI rent number might still be reflecting those earlier high increases, even as real-time asking rents have already cooled. Lucas: Exactly. That's why economists watch both. Right now, the market data is pointing toward continued moderation in rents through the rest of this year and into next year. That's good news for workers, but it's also a reminder that the cost of living is still very much a regional story. Luna: And with the July jobs report today showing an unexpected loss of twenty-three thousand jobs, does that change the wage picture at all? Lucas: It's a wrinkle, sure. A weaker labor market could eventually cool wage growth. But the employment cost index still shows wages rising at a steady clip. And the fact that inflation is easing actually helps real wages even if nominal growth slows a bit. Luna: So even with a softer jobs report, the purchasing power of the average paycheck is still improving. Lucas: Right. And that's the thing we really want listeners to take away. It's not about whether your rent went down, because for most people it didn't. It's about whether your raise is finally outpacing the growth in your rent. And for the first time in a long while, the answer is yes for many workers. Luna: That feels like a genuinely hopeful note. I mean, if you'd told me back in 2022 that we'd be here in 2026, I would have been skeptical. Lucas: And you know, it's conversations like this that remind me why we do this show. We get to walk through the economy and figure out what's actually happening behind all the scary headlines. If that's been useful to you, we'd love it if you'd support the show. You can buy us a coffee at buy me a coffee dot com slash fexingo. It's a small way to keep this podcast ad-free and independent. Luna: Yeah, and it genuinely helps us keep doing the kind of deep dives we do every week. Lucas: So back to rents. One more thing that's interesting: the ten-year breakeven inflation rate is sitting around two point two six percent, which is close to the Fed's target. That suggests the market believes inflation is mostly tamed. If that holds, workers can expect their raises to keep outpacing the cost of living for a while. Luna: But what about the people whose rents are still going up, especially in those tight markets? What would you say to them? Lucas: I'd say two things. First, if you're in a market where rents are still rising, consider negotiating. With vacancy rates up, landlords are more willing to deal. Second, keep an eye on the data. The lag means that the official rent numbers will eventually catch up to the cooler market. It might take another year or so, but the trend is your friend. Luna: So the big picture is that the era of rent outpacing wages is coming to an end, at least for now. Lucas: I'd say it's already over in most of the country. The question now is whether the supply wave will keep rents growing below the pace of wages for the next few years. And that depends on how much new construction keeps coming online and whether demand holds up with the economy. Luna: Well, it's nice to have a bit of good news for renters for once. Thanks for breaking it down, Lucas. Lucas: Anytime. And if you want to see the numbers for your own city, we'll put some links in the show notes. Until next time, keep an eye on those wage and price trends.