Zillow: CPI Shelter Forecast, July 2025

Update Following 08/12/2025 CPI Release:

The July CPI release showed a mixed picture of housing inflation measures, though still within our predicted range and consistent with our long-term forecast.

Seasonally-adjusted CPI for Owner’s Equivalent Rent (OER) increased 0.28% slighty less than our expectation of 0.31%.

Seasonally-adjusted CPI for Rent of Primary Residence rose by 0.26%, above our expectation of 0.18% .

The second monthly acceleration in rents paid was relatively small compared to the overall downward trend. Since April, the rate of rent inflation has dropped by more than a full percentage point. Housing has become an important offsetting factor for tariff-related pressure on goods prices. Softening growth in market rents should continue to drag down measures of housing prices in the CPI over time.

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New shelter inflation numbers from the Bureau of Labor Statistics are to be released on Tuesday, July 12, 2025 at 8:30 ET.

Key Takeaway

CPI housing inflation measures should moderate significantly through late 2025 and 2026, driven by a sharp deceleration in market rents over the last few months.

The Forecast

Owners’ Equivalent Rent (OER)

Owner's Equivalent Rent, which measures what homeowners would theoretically pay to rent their own homes, is projected to have increased 0.31% in July 2025 (95% confidence interval: 0.18% - 0.44%), matching June's 0.30% pace. However, we expect this measure to decelerate meaningfully over the coming months.

Annual outlook: We now forecast OER to end the year up 3.4% year-over-year, followed by a dramatic downshift to a 1.9% increase in 2026.

Rent of Primary Residence

Rent of Primary Residence, which tracks rent payments, is projected to have increased 0.18% in July (95% confidence interval: 0.06% - 0.30%), down from 0.23% in June.

Annual outlook: We now forecast the Rent of Primary Residence index to end the year up 2.7% year-over-year, before decelerating sharply to a 0.6% increase in 2026.

Zillow has revised down its 2025 on-market rent growth expectations: single-family rental homes are now expected to appreciate 2.5% annually, while apartment rents should rise just 1.0%.

Importantly, the shelter components of the CPI continue to increase at a faster pace than these on-market rent trends, reflecting not only new lease pricing but also rent changes for renewing and longer-term tenants.

Methodology 

These forecasts are based on predictions from a model that makes explicit the relationship between on market rents (measured by the Zillow’s Observed Rent Index) and the shelter components of the Consumer Price Index (CPI). 

The model incorporates:

• Expected on-market rent growth (Zillow’s Observed Rent Forecast, ZORF) 
• Assumptions about how landlords adjust rents at lease renewal 
• Renter mobility rates, which determine what share of tenants face a market rent increase.