Shelter costs account for a whopping one-third of the US consumer price index (CPI). Ex-shelter, the other two-thirds of CPI components deflated 0.1% month over month in May and were a tame +2.1% year-over-year (close to the official 2% CPI target).

Higher home and rent prices were significant factors in spiking inflation between 2020 and 2023. But high prices and rising interest rates started to weaken housing demand in the second half of 2022, as people moved in with family/other roommates and relocated to cheaper locations. Mean reversion is now underway.

Underlying data collected by the Labor Department suggests shelter inflation will fall toward zero in the months ahead. This will help central banks stop tightening and eventually bring much-needed price relief to the masses. For many landlords, though, the trends are not so rosy. Forty-eight of the 100 largest U.S. cities saw negative year-over-year rent growth for new leases in May (Apartment List data). See, Renters are about to get the upper hand:

A year-long drop in rent would be a potential problem for the many investors who took out large loans to buy buildings where they thought they would be able to keep raising rents. They are facing a softer market, falling property values and interest rates that have roughly doubled from early last year.

One of the rent measures, from real-estate brokerage Redfin, already shows asking rents turning negative with a decline of 0.6% in May, compared with the same month last year. The data includes both apartments and single-family rental homes, Redfin said.