After years of rising housing prices, renters may finally have something to celebrate.
The latest Consumer Price Index (CPI) report shows that rental inflation is easing, providing financial relief to millions of Americans, economists say. And because rents are falling significantly slower than other spending categories, the decline shows that the fierce inflation that hit households starting in 2022 is seriously easing.
“Rents have been one of the key factors that have kept inflation high,” said Stephen Brown, an economist at Capital Economics, an investor advisory firm. “That’s obviously a good sign that headline inflation is probably heading towards 2%.”
According to the Bureau of Labor Statistics, the consumer price index (CPI) for housing inflation has fallen from a peak of 8.3% in early 2023 to 5.2% this month. Capital Economics expects that trend to continue, forecasting annualized rent growth to decline to just under 3% by the end of 2025.
What Tenants Can Expect
With inflation slowing, renters aren’t likely to see major rent hikes — at least not for a while. While rents could go up or down slightly, they’ll remain essentially flat, economists say. That’s largely because the supply of housing is increasing, making it harder for landlords to raise rents much above market rates.
The pandemic exposed the country’s severe housing shortage, sparking a construction boom, particularly in the South and Sun Belt states. As a result, housing supply has exploded, particularly in cities like Austin, Dallas, Miami and Phoenix, said Thomas Ryan, another economist at Capital Economics.
It will take time to fill those units, experts told CBS MoneyWatch, especially since some construction is still underway. “We have a huge number of units under construction that we know are coming but aren’t finished yet,” said Chen Zhao, who leads Redfin’s economics team.
The result: Landlords will look to attract customers before making radical changes to rents, Ryan said. Capital Economics predicts rent growth will rise to more than 3% by the end of 2025.
In the meantime, the market is in favor of renters. And depending on where they live, apartment seekers may have an easier time finding a good deal, Ryan said. “Not only can you search for a good deal online, but if you talk to your landlord directly, you may get a discount or a really good deal that’s better than what’s advertised online.”
Tenants with existing leases can still expect increases when they renew, Brown said. But the rent hikes will be more modest and far less than the 10% or even 20% increases seen during the pandemic.
“Now rent increases are going to be closer to general inflation, hopefully in the single digits,” he said.
Another reason to be happy about more affordable rent
Lower housing costs wouldn’t just benefit inflation-weary Americans: They would also boost the confidence of Federal Reserve officials as they move closer to cutting interest rates for the first time since March 2020, just as the pandemic shut down the economy.
Redfin’s Zhao said the Latest CPI data “That helps strengthen the case for a rate cut in September.” Housing accounts for more than a third of CPI, making it the largest component of inflation. If housing inflation is falling, that’s a good sign for the economy as a whole.
“The slowdown in housing inflation will go a long way to bringing inflation back towards 2%,” Brown added.
Capital Economics expects the Fed to cut its benchmark rate by 5.25% to 5.50%, to bring it to between 3.5% and 3.75% by the end of next year. In the short term, the agency expects rate cuts in September and December, although Brown said there was a “reasonable probability” of an additional cut in November.
“That’s our forecast, but the outcome of the election could obviously upset some of our forecasts, particularly with regard to the end point in 2025,” he said.
