Rent is Falling, But That May Not Help Lower Inflation

Rent fell for the 10th straight month in May, though housing costs declined more slowly this month, raising some questions on the impact that shelter costs could have on overall inflation. 

The median asking rent for units with zero to two bedrooms fell by 0.7% nationally, according to data from the Realtor.com Rental Report. Rents are now about $24 below their peak levels in August 2022. Over the past five years, median asking rents are up by more than 22%.

Rents have been a main driver of stubborn inflation and slowing declines could be a bad sign for the economy.

Lower Rents So Far Haven’t Helped Curb Inflation

Shelter costs that include rent represent a significant portion of the Consumer Price Index (CPI), an inflation report whose May edition is set to be released this week. While industry data like Realtor.com‘s Rental Report have shown rents falling, inflation measures have not reflected that trend yet.

So far, CPI has shown rents continuing to rise, up 5.5% year-over-year in April. While still elevated, rents are cooling from their peak annual growth of 8.2% in March 2023. Since inflation measures lag behind industry data, this month’s slowing declines are sparking worries over whether rents are falling enough to dampen overall price pressures. 

“Waning market rent declines foreshadow smaller Consumer Price Index shelter declines ahead and put a question mark on whether we’ve seen enough to rein in overall inflation, complicating the Fed’s policymaking,” said Danielle Hale, Realtor.com chief economist.