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Does the Zillow rent measure help predict CPI rent inflation?

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  • N. Kundan Kishor

    (University of Wisconsin-Milwaukee)

Abstract

This paper examines the usefulness of the Zillow observed rent index (ZORI) in predicting CPI rent inflation. Using data from February 2015 to October 2023, we demonstrate that ZORI provides valuable insights into future movements in CPI rent inflation. However, its effectiveness is limited to periods when there is a significant disparity between these two rent series. By employing the Giacominiand and Rossi (2010) forecast fluctuations test, we find that, before the pandemic, there was no statistically significant difference between models that incorporated Zillow rent inflation and those that did not. However, starting in June 2020, models incorporating Zillow rent inflation began to outperform forecasting models without it in predicting CPI rent inflation. This performance advantage coincides with the two-year post-pandemic period when Zillow rent inflation significantly diverged from CPI rent inflation. The unique economic conditions following the COVID-19 pandemic highlight the potential value of ZORI in such periods, but caution is needed in generalizing these results to other periods.

Suggested Citation

  • N. Kundan Kishor, 2024. "Does the Zillow rent measure help predict CPI rent inflation?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 59(4), pages 220-226, October.
    • Handle: RePEc:pal:buseco:v:59:y:2024:i:4:d:10.1057_s11369-024-00376-0
    DOI: 10.1057/s11369-024-00376-0
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    1. Peter McAdam, 2023. "Comparing Measures of Rental Prices Can Inform Monetary Policy," Economic Bulletin, Federal Reserve Bank of Kansas City, pages 1-4, September.
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    6. Brent W. Ambrose & N. Edward Coulson & Jiro Yoshida, 2023. "Housing Rents and Inflation Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(4), pages 975-992, June.
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    More about this item

    Keywords

    Rent inflation forecasting; Zillow rent index; Direct forecasts;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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