BAM Key Details:

  • Slowing rental rates lead to lower inflation for Gen Z and Millennial renters taking on a new lease, according to a new Redfin report. 
  • Gen Z and millennial renters signing a lease in December 2022 saw their costs of goods and services rise 5.6% and 6.1%, respectively, compared to 6.5% for the typical American. 

The slowdown in rental rates has led to lower inflation for Gen Z and Millennial renters taking on a new lease—for the first time since the end of 2020. 

According to a new Redfin report, Gen Z and Millennial renters signing a lease in December 2022 saw their costs of goods and services rise 5.6% and 6.1%, respectively, compared to 6.5% for the typical American

That’s welcomed news for young renters, whose personal inflation rates spiked last year due to skyrocketing rental prices. 


Source: Redfin

Rents are increasing more slowly than the overall cost of housing due mainly to the increase in rental supply and the consequent drop in demand. 


Source: Redfin

For the first time since the beginning of 2021, thanks to the slowdown in rental price growth, Gen Zers—both renters and homeowners—have a lower personal inflation rate (6.4%)  than the overall U.S. population. Gen Zers signing a new lease see that rate drop from 6.4% to 5.6%, nearly a full percentage point lower than the typical American.

Millennials overall have a personal inflation rate of 6.8%, but Millennial renters signing a new lease are seeing their personal rate drop from 6.8% to 6.1%. 

The median asking rent for a new lease increased 4.8% year over year last December, down from 16% last July and the smallest increase in a year and a half. Compare that with overall shelter costs, which increased by 7.5%, according to the Consumer Price Index (CPI).

Compare that to the 4.4% year-over-year increase in hourly wages for the average U.S. worker. 

Ebbing price growth means renters moving now may be getting a better deal than those who signed a new lease in late 2021 or 2022. Asking rents have already dropped from the apex they reached last August and they’ve fallen from a year ago in many parts of the country, including Phoenix, Austin and Los Angeles. People looking to move now may also want to take advantage of declining demand and negotiate with landlords about perks like free parking or a free month’s rent–and those who are staying put may have some bargaining power when renewing their lease. Rental prices are likely to fall from here nearly everywhere in the country, so it may also be worth waiting a few months if you’re not in a hurry to sign a new lease.

Sheharyar Bokhari

Redfin Senior Economist

Slowing rent growth could delay homeownership plans

Because Gen Zers and millennials are typically the people signing new leases, slowing rent growth has a significant impact on their finances and, by extension, their homeownership plans. 

Only 39% of Americans under the age of 35 own their home, compared to 62% of those aged 35 to 44 and 70%-plus of those aged 45 and older. 

And with rents going down or remaining low compared to estimated mortgage payments, it’s possible more Gen Z and millennial renters will choose to keep on renting until the situation is reversed—or until they can afford the cost of becoming a homeowner. 

For those who are on the fence about continuing to rent or buying their first home, waiting a few months before locking in a new lease could be worthwhile. If mortgage rates and home prices continue dropping from their peak, entering the housing market will be more affordable than it is today. Depending on individual circumstances, that could shift the math on whether renting or buying makes more financial sense.

Sheharyar Bokhari

Redfin Senior Economist

Rental demand has cooled since the pandemic buying frenzy

Shelter inflation represents about one-third of the value of goods and services accounted for in overall inflation measures. After soaring in early- to mid-2022 due to skyrocketing home prices and rental costs, rental price growth is slowing now as demand cools.

Rental demand is declining due to less renter migration, combined with a drop in new household formation and still-rampant affordability challenges. 

The recent influx of newly built apartments will increase rental supply, as will homeowners wanting to hold onto relatively low mortgage rates and choosing to rent out their properties rather than sell them.  

The data behind Redfin’s analysis

Data for Redfin’s report stems from its analysis of the cost of goods and services for millennials (27–42 years old) and adult GenZers (18–26 years old) based on their spending habits, as tracked and measured by the U.S. Bureau of Labor Statistics’ Consumer Price Index (CPI)

Redfin’s analysis, which incorporates data on asking-rent prices, measures each component of inflation—food, fuel, shelter, and others—to calculate inflation rates for millennials and Gen Zers taking on a new lease. 

Shelter inflation (i.e., inflation pertaining to housing costs) takes into account both rental payments (including existing leases) and the monthly amount homeowners would pay in rent for their own houses. 

Renters locked into 12-month leases signed at the peak of the market, along with homeowners with the same timing for their home purchase, will be slower to see the impact of cooling inflation on their bank accounts. 

Overall shelter inflation hasn’t slowed yet because most people are still paying a “shelter price” that reflects last year’s hot rental and housing market, which is likely to peak soon after cooling significantly due to elevated mortgage rates

Top takeaways for real estate agents

If you have any Gen Z and millennial renters in your database, be sure to keep them updated on any changes in the rental and housing market that could impact their finances. And be prepared to discuss their options and advantages when they’re ready to buy a home.

Renters and aspiring homeowners aren’t always one and the same. But if you know of any renters who have yet to even consider buying a home, it’s worth finding out why they haven’t. 

At the very least, you’ll grow in your understanding of a significant sector of your local market. And that will help you identify what information is likely to be most helpful (and interesting) to them.