The real rent index fell by approximately 0.1 percent in September. The September decline, however, was not as sharp as previous months (falling by 0.4% in July and 0.3% in August) (Figure 1). The annual growth rate of the real rent index stands at 0.9 percent.
NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).
The real rent index decreased because rent inflation (+0.1%), although positive, was slower than Core CPI (+0.2%) in September. Core CPI initially fell in the wake of the coronavirus pandemic, posting consecutive monthly declines from March to May. Core CPI grew again in June (+0.2%) and accelerated in July (+0.6%) but decelerated in August (+0.4%) and September (+0.2%). The sharp declines in the real rent index during the summer months was, in part, due to Core CPI’s acceleration during the same period.