Markets in a Minute
Visualizing Housing Prices and Inflation
This infographic is available as a poster.
This infographic is available as a poster.
Visualizing Housing Prices and Inflation
Do housing prices feed into inflation?
Often, rising housing prices lead to higher rents, and rent contributes to inflation. In fact, shelter makes up over 30% of the consumer price index (CPI), a common inflation measure.
Still, the relationship is not 1:1. Historical data has shown a lag between housing prices and the CPI, while other factors—such as input prices and demand—impact their relationship.
This Markets in a Minute from New York Life Investments charts housing prices and inflation over the last 30 years.
Housing Prices and Inflation in Context
In the first quarter of 2022, U.S. housing prices rose at the fastest rate in over three decades—jumping over 18% in the last year.
Not only that, housing price growth has been at a double-digit annualized pace for each of the last six quarters, going back to Q4 2020.
Rising construction input costs have been a key factor. Combined labor and material costs increased 3% in 2019, in the line with the historical average. By 2021, these costs increased 10%, driven by supply-chain disruptions. Low interest rates also boosted demand.
Below we look at the 20 highest annual changes in the price index by quarter since 1992. Data is based on the Federal Housing Finance Agency’s House Price Index.
| Rank | Year | Quarter | Housing Price Index Change (Previous 4 Quarters) |
|---|---|---|---|
| 1 | 2022 | 1 | 18.7% |
| 2 | 2021 | 3 | 18.6% |
| 3 | 2021 | 2 | 17.8% |
| 4 | 2021 | 4 | 17.7% |
| 5 | 2021 | 1 | 13.1% |
| 6 | 2020 | 4 | 11.2% |
| 7 | 2005 | 3 | 10.6% |
| 8 | 2005 | 2 | 10.6% |
| 9 | 2005 | 1 | 10.5% |
| 10 | 2005 | 4 | 10.2% |
| 11 | 2004 | 4 | 10.2% |
| 12 | 2004 | 3 | 9.9% |
| 13 | 2004 | 2 | 9.3% |
| 14 | 2006 | 1 | 9.2% |
| 15 | 2004 | 1 | 8.3% |
| 16 | 2020 | 3 | 8.2% |
| 17 | 2003 | 4 | 7.8% |
| 18 | 2003 | 1 | 7.7% |
| 19 | 2002 | 4 | 7.6% |
| 20 | 2003 | 3 | 7.6% |
Seasonally-adjusted purchase-only index
Since CPI is a cost-of-living index, it serves to track the price of goods and services people consume. That’s why an increase in housing prices, in theory, can impact inflation.
Like the growth in housing price increases, inflation has hit multi-decade highs in 2022. Below, we rank the years with the highest inflation since 1992.
| Rank | Year | CPI Annual Percent Change |
|---|---|---|
| 1 | 2022* | 8.0% |
| 2 | 2021 | 4.7% |
| 3 | 1991 | 4.2% |
| 4 | 2008 | 3.8% |
| 5 | 2000 | 3.4% |
| 6 | 2005 | 3.4% |
| 7 | 2006 | 3.2% |
| 8 | 2011 | 3.2% |
| 9 | 1992 | 3.0% |
| 10 | 1993 | 3.0% |
| 11 | 1996 | 2.9% |
| 12 | 2007 | 2.9% |
| 13 | 1995 | 2.8% |
| 14 | 2001 | 2.8% |
| 15 | 2004 | 2.7% |
| 16 | 1994 | 2.6% |
| 17 | 2018 | 2.4% |
| 18 | 1997 | 2.3% |
| 19 | 2003 | 2.3% |
| 20 | 1999 | 2.2% |
*An estimate for 2022 is based on the change in the CPI from first quarter 2021 to first quarter 2022.
Source: Bureau of Labor Statistics (2022)
Of course, higher housing prices are not the only factor contributing to higher inflation. Take 1991. Inflation reached 4.2% driven by higher energy costs due to conflicts in the Middle East. During this time, housing prices saw relatively slower growth.
Also consider the 2008 Global Financial Crisis, where inflation hit 3.8%. Housing prices increased at double-digit speed a few years earlier, eventually hitting a peak in 2007. Meanwhile, the price of West Texas Intermediate crude oil soared from $70 a barrel in 2007 to $140 by July 2008, likely having a more immediate affect on inflation.
What’s Ahead
How will rising housing prices contribute to inflation in the near future?
First, the shelter component of the CPI looks at data from both renter-occupied units and owner-occupied units. As mentioned above, rising housing costs often lead to higher rent inflation.
Over 2022, the pace of rent inflation is anticipated to accelerate 3.4 percentage points relative to the pre-pandemic five-year average, based on analysis from the San Fransisco Fed. As a result, this is forecasted to increase CPI by 1.1 percentage points (31% of 3.4 percentage points). Given their historical relationship, accelerating rent inflation could materialize in higher CPI.
Markets in a Minute
The Top 5 Reasons Clients Fire a Financial Advisor
Firing an advisor is often driven by more than cost and performance factors. Here are the top reasons clients ‘break up’ with their advisors.
The Top 5 Reasons Clients Fire a Financial Advisor
What drives investors to fire a financial advisor?
From saving for a down payment to planning for retirement, clients turn to advisors to guide them through life’s complex financial decisions. However, many of the key reasons for firing a financial advisor stem from emotional factors, and go beyond purely financial motivations.
We partnered with Morningstar to show the top reasons clients fire an advisor to provide insight on what’s driving investor behavior.
What Drives Firing Decisions?
Here are the top reasons clients terminated their advisor, based on a survey of 184 respondents:
| Reason for Firing | % of Respondents Citing This Reason | Type of Motivation |
|---|---|---|
| Quality of financial advice and services | 32% | Emotion-based reason |
| Quality of relationship | 21% | Emotion-based reason |
| Cost of services | 17% | Financial-based reason |
| Return performance | 11% | Financial-based reason |
| Comfort handling financial issues on their own | 10% | Emotion-based reason |
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
While firing an advisor is rare, many of the primary drivers behind firing decisions are also emotionally driven.
Often, advisors were fired due to the quality of the relationship. In many cases, this was due to an advisor not dedicating enough time to fully grasp their personal financial goals. Additionally, wealthier, and more financially literate clients are more likely to fire their advisors—highlighting the importance of understanding the client.
Key Takeaways
Given these driving factors, here are five ways that advisors can build a lasting relationship through recognizing their clients’ emotional needs:
- Understand your clients’ deeper goals
- Reach out proactively
- Act as a financial coach
- Keep clients updated
- Conduct goal-setting exercises on a regular basis
By communicating their value and setting expectations early, advisors can help prevent setbacks in their practice by adeptly recognizing the emotional motivators of their clients.
Markets in a Minute
The Top 5 Reasons Clients Hire a Financial Advisor
Here are the most common drivers for hiring a financial advisor, revealing that investor motivations go beyond just financial factors.
The Top 5 Reasons Clients Hire a Financial Advisor
What drives investors to hire a financial advisor?
From saving for a down payment to planning for retirement, clients turn to advisors to guide them through life’s complex financial decisions. However, many of the key reasons for hiring a financial advisor stem from emotional factors, and go beyond purely financial motivations.
We partnered with Morningstar to show the top reasons clients hire a financial advisor to provide insight on what’s driving investor behavior.
What Drives Hiring Decisions?
Here are the most common reasons for hiring an advisor, based on a survey of 312 respondents.
| Reason for Hiring | % of Respondents Citing This Reason | Type of Motivation |
|---|---|---|
| Specific goals or needs | 32% | Financial-based reason |
| Discomfort handling finances | 32% | Emotion-based reason |
| Behavioral coaching | 17% | Emotion-based reason |
| Recommended by family or friends | 12% | Emotion-based reason |
| Quality of relationship | 10% | Emotion-based reason |
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
While financial factors played an important role in hiring decisions, emotional reasons made up the largest share of total responses.
This illustrates that clients place a high degree of importance on reaching specific goals or needs, and how an advisor communicates with them. Furthermore, clients seek out advisors for behavioral coaching to help them make informed decisions while staying the course.
Key Takeaways
With this in mind, here are five ways advisors can provide value to their clients and grow their practice:
- Address clients’ emotional needs early on
- Demonstrate how you can offer support
- Use ordinary language
- Provide education to help clients stay on track
- Acknowledge that these are issues we all face
By addressing emotional factors, advisors can more effectively help clients’ navigate intricate financial decisions and avoid common behavioral mistakes.
The Top 5 Reasons Clients Fire a Financial Advisor
The Top 5 Reasons Clients Hire a Financial Advisor
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