Back in 2022, when U.S. inflation soared past 7%, it was a widespread issue affecting a broad array of goods and services. Fast forward to today, with inflation settling below 3%, and it’s clear that housing has become the central concern. The unexpected surge in rental costs early this year played a significant role in the Federal Reserve’s decision to pause anticipated rate cuts, much to Wall Street’s dismay.

“We believed we had a grasp on the short-term model predicting the decline in housing inflation,” remarked Austan Goolsbee, President of the Chicago Fed. “Yet, the decrease hasn’t been as swift as anticipated.”

The rental inflation challenge is no longer uniformly distributed across the country. Contrast the Northeast and Midwest, where inflation stubbornly persists, with the West and South, where it’s diminishing quickly. The key factor? Supply.

Chris Salviati, a housing economist at Apartment List, notes, “Markets experiencing the steepest rent reductions are also those with the most robust construction activity.” This correlation underscores the impact of supply dynamics on rental inflation trends.