The Fed Funds Rate and its battle with inflation has been in the spotlight for a number of years now. A key factor in the Fed’s decision on whether or not to move the target rate is the Consumer Price Index (CPI) report that is published monthly by the Bureau of Labor Statistics. The CPI measures the price for things like food, energy, medical care, etc, and about 35% of the index comes from the “Shelter Index”. Recently, a number of the price indexes within the CPI have been softening – or at the very least “growing slower” – but the Shelter Index continues to climb, pushing up CPI and therefore preventing the Fed from lowering interest rates. 

Why is it climbing?

I will let experts handle the answer to that question. Jay Parsons (Head of Research, Madera Residential) has a great LinkedIn post about this topic, the Wall Street Journal wrote an article on it, and there is plenty more out there (TLDR: the Shelter Index mostly relies on “continuing leases” as a signal of rent price, but often times these leases were signed many months ago – and prices were much different 12 or 18 months ago compared to what they are today).

My question to answer here: what do the big syndicators say about rent rate trends? They should have all the data… how far off is this Shelter Index concept used by the government? Let’s look…

Zillow: Observed Rent Index

Here is a chart showing the “Zillow Observed Rent Index” (ZORI):

The chart shows a 2% annual increase so far in 2024, with a peak of nearly a 13% increase in 2022.

Drilling down to Single Family Rental only, the chart shows a 3.1% increase so far this year:

CoreLogic Single Family Rent Index

CoreLogic publishes a monthly index for Single Family Rent rates. Here is the year-over-year change that they report, and it appears to be very similar to the ZORI for SFR (3.1%) at 3%:

Source: CoreLogic Single Family Rent Index

Realtor.com Rent Report

Every month, Realtor.com puts out a “Rental Report” that includes median rent reporting for major metros across the country. Here is a chart from their latest report showing a decrease in rent rates on a year-over-year basis (equivalent to about a -0.7% decrease YoY blended across the three unit types):

Source: Realtor.com Data Center

Note that Realtor.com does not provide data on single family rentals separate from multi-family units – it is all blended in the metric. 

Redfin Asking Rents

Redfin reports on “Asking Rents” every month, and here is what that chart looked like as of June 2024:

Source: Redfin

Conclusion

The year-over-year change in average rent price for some of the largest data providers in housing are:

• Zillow: 2% (SFR only: 3.1%)
• CoreLogic SFR: 3%
• Realtor.com: -0.7%
• Redfin: 0.8%

(one interesting tidbit: Single Family Rental rates appear to be more resilient than Multi-family according to these reports)

Compare these numbers to the year-over-year change for the Shelter Index as reported within the monthly CPI report: 5.4%.

If we treat the data providers as a real-time measure of the rent rate trend, and we know the Shelter Index has a significant built-in lag – it is no longer a matter of if the Shelter Index will decrease, but only a matter of when.