Ever-increasing housing costs are not only straining budgets – they also are the biggest contributor to the nation’s bump in inflation, according to a report released Tuesday by the Bureau of Labor Statistics.
The consumer-price index, a widely used measure of inflation, moderated to 6.4% in January from a year earlier and down from 6.5% in December, the Labor Department said.
But housing costs – which make up 40% of the index – rose 0.7% for the month and increased 7.9% from a year ago.
“Home prices rose much faster than incomes over the past three years,” said Bright MLS Chief Economist Lisa Sturtevant. “The Fed’s rate increases, which have led to higher mortgage rates, have made the cost of buying a home even more costly.”
Disconnect between wages and housing costs
The price of a typical home rose 43% in the past three years, far surpassing the average wage increases of 16%.
The median price of a home went from $254,900 in early 2020 to $366,900 in December 2022.
“Slowing demand in the housing market was part and parcel of the Fed’s strategy designed to cool consumer demand to bring down inflation,” says Sturtevant.” But as the cost of borrowing to purchase a home rises, it disproportionately impacts young, prospective first-time homebuyers and widens the already sizable wealth gap in the U.S.”