Owners' Equivalent Rent (OER)
What is 'Owners' Equivalent Rent (OER)'
Owners’ equivalent rent (OER) is the amount of rent that would need to be paid to substitute a currently owned house as a rental property. This value is also referred to as rental equivalent. It is a commonly cited measure that provides a gauge for changes in real estate market values.
BREAKING DOWN 'Owners' Equivalent Rent (OER)'
Owners’ equivalent rent is a statistic that is followed by homeowners and tracked by the Bureau of Labor Statistics. Generally, owners' equivalent rent is obtained through surveys asking homeowners the following question: "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?"
Bureau of Labor Statistics
When evaluating housing and shelter, owners' equivalent rent of a primary residence is one of the three components of the shelter category contributing to the Consumer Price Index (CPI), which measures the average change over time in the prices paid by consumers for a market basket of goods and services. The calculation takes into account rental values, owners’ equivalent rent and lodging away from home. These three components are drivers of changes in the total value of shelter. Collectively, these components can be influenced by the real estate market environment overall as well as various monetary factors such as prevailing interest rates, property taxes, available mortgage products and insurance.
In February 2018, the shelter component of the Consumer Price Index reported a 0.20% monthly increase and a 3.1% annual increase. Shelter prices were among the lowest increases across the CPI with energy and particularly fuel oil having the highest impact. In February 2018 the CPI’s average increase across all items was also 0.20%.
In addition to serving as a component of the CPI the Bureau of Labor Statistics also provides data on fluctuations in owners’ equivalent rent monthly. This owners' equivalent rent is a percentage change that is published by the Bureau of Labor Statistics to measure the change in implicit rent, which is the amount a homeowner would pay to rent or would earn from renting his or her home in a competitive market.
Owners’ equivalent rent typically changes with movements in the Consumer Price Index. In 2010 owners’ equivalent rent showed significant decreases beginning in March 2010 and decreasing through September 2010. Overall owners’ equivalent rent has been steadily increasing at a rate of greater than 3% each month since June 2015. In 2018 owners’ equivalent rent increased 3.2% in January and 3.1% in February.