MW Rent increases are driving overall inflation - but it's a lot more complicated than you think

By Aarthi Swaminathan

Shelter inflation is expected to slow down in the coming months, but private-sector data signals a U-turn up ahead

Rising rent prices were a major factor pushing up consumer prices in April. While they're expected to come down in the months ahead as the U.S. economy slows, the path ahead will be bumpy, according to data from real-estate companies.

Consumer prices inched up in April, with shelter costs accounting for more than half of all inflation. Inflation rose 2.3% over the past 12 months and 0.2% from the previous month, according to the Bureau of Labor Statistics.

Persistently rising housing costs have been the biggest driver of inflation over the past few years. Rents surged during the pandemic, eating up an increasingly high share of renters' income. About half of all households that rent spent more than the recommended 30% of their income on housing and utilities as of 2022, the most recent year for which data is available, according to a report by Harvard University's Joint Center for Housing Studies.

Rental costs still remain high relative to their prepandemic levels. Between April 2020 and April 2025, the typical rent for an apartment in the U.S. increased by about 29% to $1,900, while rent for a single-family home increased by 43% to $2,300, according to an analysis by real-estate platform Zillow (Z). Rising rent prices outpaced wage growth: Median household income over that five-year period only increased by 23%.

Shelter is the largest component of CPI - 'and the slowest to decline'

Most economists expect rents as measured by the consumer-price index to come down over the coming months.

Shelter "is the single largest component of the CPI ... and the slowest to decline," Mark Fleming, chief economist at First American, told MarketWatch. He said that the CPI lags more current data by 12 to 18 months.

One possible explanation, as put forth by one economist at the Federal Reserve Bank of Boston in June 2024, is that more current data sources reflect rents paid by new tenants, while the CPI captures rents paid both by new and existing tenants. Private-market data, such as from real-estate companies, offer more real-time information about the rental market.

The private data indicates that rents have largely stabilized and even dropped in some cities over the past few years, as homebuilders ramped up construction on apartments and single-family homes available for rent.

In April, asking rents were 0.3% lower than they were the same month a year earlier, according to a monthly report by Apartment List, a rental-listings platform. The median national monthly rent was about $1,400 as of April, Apartment List said.

Currently, "there are more apartments for rent than people who want to rent them," Sheharyar Bokhari, a senior economist at Redfin $(RDFN)$, a real-estate brokerage, said in a recent report.

The real-estate platform Realtor.com's monthly report pegged the median asking rent at about $1,700 as of April, down 1.7% from the same month last year. The median rent for studio apartments was $1,410; for one-bedrooms, it was $1,580; and for two-bedrooms, it was about $1,900.

(Realtor.com is operated by News Corp subsidiary Move Inc.; MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)

Rent prices could accelerate in the future as builders pull back on supply

Looking further ahead, the rental-housing market is also approaching another major turning point that could push rents up.

As builders pull back due to an uncertain economic outlook, the high cost of construction and elevated interest rates, rents could start rising again. Confidence in the market for new multifamily housing fell on an annual basis in the first quarter of this year, according to the National Association of Home Builders, an industry group.

"Builders are sort of a dour bunch at the moment - and rightfully so," said Fleming, the First American economist. In addition to pulling back due to oversupply, builders are also worried about future interest rates and the future of the economy, both of which are reason enough to pause making big investments, he added.

Builders are applying for fewer permits to start construction on new homes, Bokhari added. The federal government will release new data on building permits and housing starts on Friday.

"Construction costs, regulatory barriers and financing are the main headwinds right now, with some developers also citing uncertainty about tariffs as a reason to be cautious," said Debra Guerrero, chairman of NAHB's Multifamily Council.

All of that uncertainty could push up rents in the future. Kara Ng, a senior economist at Zillow, said her team was adjusting its rent-growth forecast upward due to the pullback in supply.

"Affordability has improved slightly for renters in the past year, but the construction boom that's helped ease price pressures is slowing," Ng said. "Vacancy rates have leveled off, and fewer property managers are offering concessions."

Where rents have decreased - and increased - the most over the past year

Here's where asking rents went down the most between April 2024 and April 2025, according to Redfin:

   Metropolitan area                             Median asking rent in April 2025  Annual percentage change 
   Denver-Aurora-Lakewood, Colo.                 $1,749                            -6.80% 
   Minneapolis-St. Paul-Bloomington, Minn.-Wis.  $1,530                            -6.70% 
   Orlando-Kissimmee-Sanford, Fla.               $1,745                            -5.50% 
   Seattle-Tacoma-Bellevue, Wash.                $2,054                            -4.80% 
   San Diego-Chula Vista-Carlsbad, Calif.        $2,719                            -4.30% 

And here is where median asking rents increased the most over the same time period:

   Metropolitan area                         Median asking rent in April 2025  Annual percentage change 
   Providence-Warwick, R.I.-Mass.            $2,185                            5.20% 
   San Jose-Sunnyvale-Santa Clara, Calif.    $3,284                            5.10% 
   Chicago-Naperville-Elgin, Ill.-Ind.-Wis.  $1,772                            5.10% 
   Pittsburgh, Pa.                           $1,499                            4.10% 
   Cleveland-Elyria, Ohio                    $1,290                            4.10% 

-Aarthi Swaminathan

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May 14, 2025 06:00 ET (10:00 GMT)

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