Everybody is waiting for rent relief to help bring overall inflation down. It might take longer than conventional wisdom suggests.

Why it matters: A surge in market rents in 2021 and 2022 still has a ways to go in fully working its way through the economy, despite moderation in market rents since then, a new paper from a Boston Fed economist finds.

• As a result, rents are on track to exert upward pressure on overall inflation for quite a while to come, the paper argues, a headwind to bringing inflation down to the Fed's 2% target.

The big picture: Rents soared during and immediately after the pandemic as Americans sought bigger homes and were flush with higher paychecks and pent-up savings. But private-sector indicators of market rents rose much faster than the rent numbers calculated for the Consumer Price Index and other inflation indicators at that time.

• That's because market rent data only encompasses people signing new leases. Many existing tenants saw no immediate change — perhaps because they had long-term leases in place, or landlords were reluctant to raise rent on existing tenants, or local laws constrained rent hikes.
• But over time, those leases turn over, with more renters paying the higher market prices. That process is still underway, even though market rents have risen less in 2023 and 2024, according to the analysis from the Boston Fed's Christopher D. Cotton.

By the numbers: Compared to 2019 levels, there is a 6 percentage point gap between rents on new leases and the shelter inflation shown in the CPI.

• The process of higher market rents filtering through the inflation data is on track to add 0.7 percentage point to the core Consumer Price Index over the next year and 0.3 percentage points to core inflation using the Fed's preferred gauge, Cotton finds.
• "The fact that market rents remain 6% higher than CPI-shelter relative to pre-pandemic implies that CPI-shelter will grow more quickly than market rents for the foreseeable future," Cotton tells Axios.

Of note: Fed vice chair Philip Jefferson noted last month that "market rents adjust more quickly to economic conditions than what landlords charge their existing tenants."

• "This lag suggests that the large increase in market rents during the pandemic is still being passed through to existing rents and may keep housing services inflation elevated for a while longer," Jefferson said.

The intrigue: One risk to watch is that even once the pandemic-era rent inflation has worked its way through the data, there could be a new surge in market rents due to under-supply.

• Construction of new multifamily housing has plunged below pre-pandemic levels in recent months as builders grapple with high interest rates.

Supply issues keep slamming would-be homeowners. The median price for an existing home was the highest on record last month — a lingering side effect of an under-supply of these homes available for sale.

• The median existing-home sale price spiked nearly 6% last month compared to the same time a year ago, to $419,300, the National Association of Realtors said today. Prices have been on the upswing by this measure for almost a year straight.

State of play: The trade group said that the number of existing home sales fell 0.7% from April to an annual rate of 4.1 million last month. Compared to a year ago, sales are down almost 3%.

• The "lock-in effect" has crimped the supply of existing homes. Owners with low mortgage rates are less willing to move and trade their current rate for a much higher one. The 30-year fixed mortgage rate averaged 6.9% as of yesterday.
• "Home prices reaching new highs are creating a wider divide between those owning properties and those who wish to be first-time buyers," Lawrence Yun, an economist at NAR, said in a release.

The intrigue: Other indicators also suggest housing price pressures are getting worse.

• The latest Case-Shiller Index hit an all-time high, while a house price index composed by the Federal Housing Finance Agency similarly topped record levels.