Update Following 05/13/2025 CPI Release:

Today’s CPI shelter release came in above our forecast. Seasonally-adjusted CPI for Owner’s Equivalent Rent (OER) increased at an annualized rate of 4.37% in April, versus our expectation of 3.69%. Seasonally-adjusted CPI for Rent of Primary Residence rose at an annualized rate of 4.18% in April, versus our expectation of 3.45%. Shelter drives about half of core services inflation. 

Within the framework of our model, a second consecutive month of housing inflation exceeding expectations points to two dynamics:

• Increased rental demand – More renters may be entering the market, consistent with potential first-time buyers opting to continue renting. This is supported by higher rent growth in the single-family market.
• Leases renewing with higher rents, landlords could be aiming to bring rents up to market levels more quickly amid economic uncertainty. (Our model assumes a steady pace of catch-up.)

Zillow continues to forecast slower growth in asking rents, increasing the downward pressure on CPI. The impetus for rent increases on renewed leases is less clear. Renters concerned about rent hikes may find it useful to keep an eye on the market for comparable units. Understanding local market conditions can help get a sense of bargaining power and open the door to proactively negotiating for smaller rent hikes or specific lease concessions.

Original:

New shelter inflation numbers are to be released from the Bureau of Labor Statistics on Tuesday.

What our forecast says:

A slight upward revision from last month’s estimates, we now forecast April seasonally adjusted owner’s equivalent rent growth to continue at 3.69% annualized growth. Similarly, seasonally adjusted rent for primary residences is expected to come in at 3.45% annualized growth. These measures are expected to remain at the current pace for the next few months and then soften into the end of the year. Zillow’s forecast for on-market rent growth for single-family homes was revised up, now expected to rise 3.23% over 2025, 2.08% for multifamily. The rate of shelter CPI growth continues above this pace, reflecting not just on-market rent trends but also increases in rents paid by continuing tenants. With economic uncertainty keeping many potential buyers in the rental market, landlords are finding firmer pricing power. Concessions, which surged in 2024 as new supply hit the market, are now declining as vacancy rates stabilize.

Our results use a modeled relationship between Zillow’s Observed Rent Index, capturing on-market asking rent for new leases, and the shelter components of the Consumer Price Index (CPI), which seeks to capture the market for both new and renewed leases. This modeled relationship incorporates expected rent growth in on-market rents (Zillow’s Observed Rent Forecast, ZORF), assumptions over how current landlords respond to higher on-market rent when keeping or raising current rent on a lease renewal, and mobility rates of renters – which determines the share of the population experiencing higher rents since the significant on-market rent shock in 2021 and 2022.