To combat inflation, Trump must prioritize increasing home construction.

• To reduce inflation to an acceptable level, President-elect Donald Trump will require assistance with housing costs.
• The Federal Reserve's 2% inflation target may not be consistently and convincingly achieved until housing inflation decreases further.
• In October, the national average rent was $2,009 per month, a slight decrease from September but a 3.3% increase from the previous year.

To reduce inflation to an acceptable level, President-elect Donald Trump will require assistance from housing costs, an area where federal policymakers have limited influence.

The November consumer price index report showed mixed news regarding the shelter sector, which accounts for one-third of the closely monitored inflation index.

Since February 2022, the category has recorded its smallest full-year increase. Additionally, two rent-related components within the measure experienced their smallest monthly gains in over three years.

Although the annual increase in the price gauge was 4.7%, which is the same level as seen in mid-1991 during the Covid era, housing contributed more to the monthly increase than food costs.

The CPI annual rate has increased to 2.7% - 3.3% when excluding food and energy, but it is uncertain if inflation will consistently and convincingly return to the Federal Reserve's 2% goal until housing inflation decreases further.

""As time passes, we can anticipate a gradual decrease in rental growth rates, according to Lisa Sturtevant, chief economist at Bright MLS, which serves six states and Washington, D.C. However, it seems like it's taking longer than expected," she said."

Still rising but not as fast

Since peaking in March 2023, housing inflation has been gradually decreasing, but the rate of decrease has been inconsistent. Similarly, while the overall CPI has been increasing, the rate of increase for shelter components has been slower.

The persistent issue of housing has been attributed to the continuous cycle of supply exceeding demand, a condition that started in the early days of Covid and remains unresolved. According to Realtor.com, housing supply in November was 17% lower than its level five years ago.

The attention of policymakers has been on rents, with the media reporting both positive and negative news.

In October, the national average rent was $2,009 per month, a slight decrease from September but still 3.3% higher than the previous year, as reported by Zillow. Over the past four years, rents have increased by approximately 30% nationwide.

The Federal Reserve is attempting to decrease high interest rates, which is contributing to the rise in housing costs.

Despite the central bank reducing its benchmark borrowing rate by three-quarters of a percentage point since September and forecasting another quarter point reduction next week, the typical 30-year mortgage rate has increased by roughly the same amount during the same period.

The convergence of several factors poses a potential threat to Trump, despite economists predicting that his policies, including tax breaks and tariffs, could contribute to inflation.

"Sturtevant stated that the president-elect's proposed initiatives may be inflationary, which could make it less certain that the country will continue to make progress towards a 2% inflation rate. He also expressed his belief that the federal government may not be able to effectively address the supply issue in the short term."

Optimism for now

Trump's campaign focused on deregulation as a key economic policy, which could impact the housing market by allowing construction on federal land and reducing barriers for homebuilders. Additionally, Trump has advocated for lower interest rates, although monetary policy is largely beyond his control.

The Trump transition team did not respond to a request for comment.

The mood on Wall Street was generally upbeat about the housing picture.

Stephen Juneau, an economist at Bank of America, stated in a note that rents may finally be stabilizing at levels that are consistent with 2% inflation. Krushna Guha, the head of central bank strategy at Evercore ISI, wrote in a note that the November housing data will be viewed as positive by the Fed.

Navy Federal Credit Union's corporate economist, Robert Frick, stated that although the rate of increase in shelter expenses has slowed, it remains the primary contributor to higher prices.

Trump may face a Catch-22 that makes it difficult to ease the housing burden.

"Shelter costs won't decrease until rates are lowered, but rates can't be lowered until shelter costs decrease," Sturtevant stated. "We are aware that there are some unforeseen circumstances that were not discussed two or three months ago."