What does the consumer price index (CPI) have to tell us about the future of the housing market?

Apparently a lot.

Let me first explain a few things for those of you housing types who don’t follow this monthly number. The CPI is the most common way to measure inflation. There’s the big number and then what’s called the “core” number, which is the big number minus food and energy costs (gas prices obviously skewing things a lot these days). The big number was pushed down thanks to a drop in gasoline prices, but the core number was higher than expected, thanks to housing.

One component of the CPI is the “Owners Equivalent Rent,” (OER) measures the amount of money it costs to live somewhere, anywhere, be it a rental apartment or your own home.

“The key factor in the higher than expected core rate was a .2 percent rise in Owners Equivalent Rent, the biggest gain since March ’09,” writes Peter Boockvar of Miller Tabak. “This figure is important because it makes up 25 percent of CPI and 40 percent of the core. Apartment landlords are gaining pricing power as vacancies fall as the homeownership continues its decline. This is a secular trend and will result in a further lift in core inflation going forward.”

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