Market Extra: Zillow sees rent growth tumbling, but that isn’t what the Fed’s tracking

by | Sep 19, 2022 | Stock Market

A look at Zillow Group’s closely followed rent index shows that last year’s roughly 17% yearly surge in rental prices was probably the peak, with the rate of increases dramatically receding in the past six months. The trend might give renters moving to a new city more breathing room or someone a better shot at affording a place on their own. But here’s why a cooling rental market, evidenced by Zillow
Z,
-3.41%
metrics or others like it, won’t have a ton of sway with the Federal Reserve in its fight against inflation.

“We can cheer that in terms of how it directionally impacts us,” said Kevin Gordon, senior investment research manager at Charles Schwab & Co., speaking by phone. “But those metrics, those sources, aren’t the same as what the Fed is tracking, and what goes into CPI.” The huge shelter component of the consumer-price index, a key inflation gauge for the Fed, largely hinges on this question to homeowners: How much do you think your house could fetch if it was rented out? Zillow, however, relies on monthly changes in listing prices of rental properties, as do others that rent properties or track the data. That’s why Zillow’s metrics (purple below) show a retreat in growth, even though CPI (orange) has been climbing.

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