Rent should stop driving inflation soon, Zillow says

Inman News

Zillow reported rent grew by just 0.6% in April as an ongoing slowdown in rent growth continued after peaking last year

In continued signs that the rental market was falling back toward historical norms and would soon stop keeping inflation numbers high, Zillow reported rent grew by just 0.6 percent in April.

That’s almost in line with typical monthly gains of 0.7 percent in April that occurred from 2016 to 2019, Zillow said in its latest Zillow Observed Rent Index.

The typical rent in the U.S. is now $2,018 a month, up 1.3 percent above January. Typical rent is also 5.3 percent higher than it was a year ago. The latest report marks 13 consecutive months in which rent growth slowed.

The Midwest and Northeast have seen the highest rent growth amid the broader national slowdown, while the Western U.S. largely leads in the slowdown in rent growth.

All of the nation’s biggest metro areas saw rent rise in April, Zillow said.

View Interactive Graph Here

Most expensive rental markets

  • San Jose: $3,289
  • New York: $3,229 
  • San Francisco: $3,122
  • San Diego: $3,040
  • Boston: $2,978

Fastest rent growth in April

  • Boston: 8.5 percent
  • Cincinnati: 8.1 percent
  • Providence: 8 percent
  • Louisville: 7.5 percent
  • Kansas City: 7.5 percent

What this means for inflation

Rent is one of the biggest drivers of inflation, and it might be about to fall out of inflation figures that have remained stubbornly high, Zillow said.

That would relieve one of the biggest pressures that led the Federal Reserve to quickly raise interest rates over the past year.

Zillow is one of the private indices that provides a near real-time track of rent prices in the U.S. The Federal Reserve has confirmed that those indices lead official inflation data by about 12 months.

Zillow’s index showed rent peaked in February 2022 before beginning a steady fall starting that March that has continued in the data from April 2023. 

The past two CPI releases showed rent stalling, and it may begin a descent that mimics Zillow and other private data. 

“Six months ago, we urged inflation watchers to mark their calendars to see if official measures of annual rent inflation would begin to decelerate in the March 2023 data, to be released this April,” Zillow said.

CPI-rent was 8.8 percent in both February and March, possibly showing that rent is stalling in the official data and would begin to fall when the next CPI data was released, Zillow said.

“The monthly data series is volatile, so it is possible that the annual growth rate bounces around near its current 8.8% level for a few months,” Zillow said, “but the data this spring seems to confirm that we are somewhere near the summit for official annual CPI rent inflation.”