Check out what's happening to new lease rents in the CPI's rent survey (which is critical component of Shelter inflation estimates): The cold plunge in new lease rents is even deeper than what most private data sources are showing.
The BLS says new lease rents dropped 4.7% year-over-year as of Q4, compared to most private sector data sources showing new lease rents closer to 0%. That's especially interesting because (theoretically) the BLS is tracking a larger swath of the rental market.
While CPI Rent is still inflated due to renewals, we can see where this train is going. Rent/shelter is still pulling up headline inflation today due to data lags (and >1/3 weighting of CPI), but it'll very likely steadily cool through 2024.
Reminder: New lease rents are the earliest indicator of rent direction -- and any effort to impact rents via fiscal policy will be first felt in that metric. New lease rents effectively serve as a cap on renewals. Today, renewal growth tops new lease growth due to "loss to lease" -- meaning that these expiring/renewing leases were previously priced below market, and they're being brought closer to market upon renewal.
But there's only so much gas in the tank. On a nominal basis, as loss to lease shrinks, you can't keep pushing renewals upward. If you push nominal rents for renewals above new lease rents, you incentivize move-outs. Especially in today's environment, where a) new lease rents are highly transparent.... your residents can easily see your asking rents online and compare to their renewal letters, and b) rising vacancy means renters have a lot more options.
So renewal rent growth will continue to trend down, except in unique cases (i.e. rent controlled units where price caps are also price floors).
Lastly: This chart raises some questions on how the BLS is weighting new leases in its rent calculations... I've had difficulty tracking down that detail, but my wild guess is they're assuming ultra-low turnover and therefore underweighting new leases.