Shelter inflation is finally unwinding. The July 2025 CPI release confirms it. Rent of Primary Residence now holds a 7.52% weight in the CPI-U. Owners’ Equivalent Rent (OER) sits at 25.08%. Combined, shelter accounts for 32.6% of the entire inflation basket. That’s the largest single category. And it’s softening.
The lag is structural. CPI rent metrics trail real lease activity by roughly six months. Zillow’s Observed Rent Index peaked in late 2023. New leases have been flat or negative since Q1. That rollover is now bleeding into official data. Rent of Primary Residence rose just 0.21% month-over-month in June. OER posted 0.19%. Annualized, both are tracking under 3.0%. That’s below the Fed’s 2.0% inflation target.
Fair Market Rent data from HUD confirms the shift. Between April and July, 2-bedroom units nationwide dropped 2.1%. In Boston, FMR for a 2BR fell from $2,837 to $2,798. In Phoenix, it dropped from $1,749 to $1,701. These are hard numbers. Lease rollover is slow, but the direction is locked.
RealPage data shows Class A and B units offering 1.2 months of concessions on average. Vacancy rates are rising in the Sun Belt. Multifamily absorption is slowing. Builders are pulling back. The pipeline is thinning.
DiMartino Booth nailed the timing: “It took a long time for the increase in home prices, the increase in rents to show up in the CPI, but now it’s actually going to be the largest drag on inflation going into the second half of 2025 and in 2026.” Shelter inflation was the last shoe to drop. Now it’s the biggest weight pulling CPI down.
& down go the new tenant rents…
For now. pic.twitter.com/zy22aCRHwE
— MacroEdge RESights (@RESightsbyME) July 22, 2025
As I’ve been saying for awhile (and @DiMartinoBooth explains below), Housing will continue to anchor inflation more and more.
In the CPI calculation, the Rent of Primary Residence" category accounts for approximately 7.3% of the overall CPI weight in the Consumer Price Index for… https://t.co/N2LTpUmbr9 pic.twitter.com/2mW626WBqw
— Kalani o Māui (@MauiBoyMacro) July 22, 2025
Rocket Mortgage lays off 2% of workforce after Redfin acquisition#MacroEdge
— MacroEdge RESights (@RESightsbyME) July 22, 2025
…Pulte Net Income decline of 25%
DR Horton Net Income decline of 24% @MrAwsumb#RESights #MacroEdge— MacroEdge RESights (@RESightsbyME) July 22, 2025
No caption needed… pic.twitter.com/s4zYb7TnBT
— MacroEdge RESights (@RESightsbyME) July 23, 2025
This is a slow bleed. But in CPI terms, it’s a drag. Shelter inflation will keep falling through Q4 and into 2026. That’s 33% of the CPI basket leaning deflationary. Goods inflation is flat. Services are sticky. Shelter is now the swing vote.
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm
https://fred.stlouisfed.org/series/CUUR0000SEHA
https://fred.stlouisfed.org/series/CUSR0000SEHC
https://www.huduser.gov/portal/datasets/fmr.html
https://www.zillow.com/research/cpi-shelter-forecasts-expecting-little-change-35064/
https://www.marcusmillichap.com/research/research-brief/2025/07/research-brief-july-inflation