Cooling Rents Offer Inflation Relief as Other Price Pressures Persist

Rental prices are stagnating after their post-pandemic spike, helping renters’ wallets and giving the Federal Reserve one bit of good news on inflation as the Iran-related energy shock persists.

Softer rents aren’t universal. Some markets where apartment construction was hot during the pandemic—Florida, Texas or North Carolina—are seeing rent prices fall since vacant apartments are putting pressure on rents. It’s a different story in the Midwest and some coastal cities, where rents are rising since fewer apartments have been built.

Analysts see indications that rental prices will remain sluggish, much as in 2025. That’s partly because job growth has been muted, weighing on demand since renters may choose to live with roommates or their parents rather than strike out on their own.

“February is usually a slow month, but the signals do not point to a strong bump in rents in the spring,” wrote Paul Fiorilla, director of research at Yardi Matrix, in the firm’s latest report on rental market conditions.

Slowing rent growth could help cool inflation and shape Federal Reserve policy. For renters, it may mean more negotiating power and modest affordability gains.

The national average advertised rent was $1,740 in February, up just 0.1% compared to last year, according to Yardi Matrix.

Rents grew by over 3% in Chicago, San Francisco and New York City and a bit less in Kansas City and the Twin Cities. But they fell more than 5% in Austin; more than 3% in Tampa, Denver and Phoenix; and nearly 2% in Charlotte.

“Many of these Sun Belt markets face elevated vacancy after newly constructed apartments opened, putting downward pressure on rents,” wrote Grant Montgomery, national director of multifamily analytics at CoStar Group.

Despite stronger increases elsewhere, an “inventory overhang continues to weigh on rent growth nationwide,” he added.

The spring leasing season will be critical, since those are “the months that could make or break an apartment operator’s year,” wrote Jay Parsons, the author of the Rental Housing Economics newsletter.

Those operators have long been hoping for a better 2026, Parsons wrote, after red-hot markets in 2021 and 2022 cooled and led to slower rent growth. That came as their own costs rose thanks to sharply higher interest rates and rising prices on insurance and maintenance.

Apartment buildings are no longer springing up left and right, a shift from the “back-to-back-to-back years of ultra-high supply,” Parsons wrote. But the demand outlook was murky to start 2026 and is even more so today.

“The latest job numbers plus potential fallout from the Iran conflict only add to that uncertainty,” Parsons wrote.

For now, the boom in apartment supply is giving renters the upper hand, according to Orphe Divounguy, senior economist at Zillow.

Property managers are “increasingly competing on price and incentives,” Divounguy wrote. Nearly 40% of rental listings on Zillow offered concessions such as free rent initially or waived fees, Divounguy wrote.

That’s making renting more affordable but only modestly, Divounguy wrote. To comfortably afford the typical rent, a household needs to make about $76,000 annually, he wrote, or $20,000 higher than pre-pandemic levels.

“Elevated vacancy, continued apartment completions and more single-family homes entering the rental market are expected to keep national rent growth in check, although local conditions will vary,” Divounguy wrote.

The sluggish rental market is putting downward pressure on inflation, at a time when the Iran conflict raises the risk of commodity prices rising sharply again.

Continued softening in rents could be welcome news for the Fed, which has struggled to get inflation back to its 2% target following a price spike in 2021 and 2022. Weaker rents could help put the Fed back on a more dovish path.

Markets last week scrapped their earlier views that the Fed would cut interest rates again this year, as the oil shock threatens to push prices up again for some time.

But weaker rental markets may provide a cushion. Rental conditions take a long time to show up in inflation data, given significant lags and quirks in the data. But they did indeed show up in February’s numbers, helping bring the Consumer Price Index to an annual rise of 2.4% in February—down from a peak of nearly 9% in June 2022.

The reading “confirmed continued deceleration” in shelter prices, wrote Michael Gapen, chief U.S. economist at Morgan Stanley. The category accounts for about a third of the CPI index and includes both rents and owners’ equivalent rent, an estimate of what homeowners would pay if they were renting their homes.

“We think it is increasingly clear that rent inflation will soften over the rest of 2026,” they wrote.

Rising oil prices, however, might negate that impact. Inflation closer to 3% is “here to stay,” wrote Andy Schneider, senior U.S. economist at BNP Paribas, since the oil shock will keep inflation elevated for some time and “essentially cancels our lower rent inflation estimates.”

Others are more optimistic that inflation will resume its descent later this year.

Higher oil prices will no doubt push up inflation in the near-term, wrote Ryan Swift, chief U.S. bond strategist at BCA Research. But “those pressures should abate within the next few months, while the downtrend in shelter inflation will persist,” he wrote.