Real Impact: What The June 2025 CPI Report Means for Rental Housing

Real Impact by Chandan Economics explores how cornerstone data releases influence interest rate forecasts and reshape the rental housing sector's outlook.

What Happened: 

The US Consumer Price Index (CPI) accelerated in June, rising 0.3% from May and 2.7% over the past twelve months. Core-CPI, which removes the more volatile food and energy components, also accelerated relative to the past few months, up 0.2% month-over-month and 2.9% annually.

The CPI categories driving price growth in June suggest that the effects of tariffs are beginning to take hold, following several months of seemingly little effect. Prices of items like appliances and apparel, which have high exposure to tariffs, accelerated to monthly increases of 1.9% and 0.4%, respectively. Other items, such as vehicle and airfare prices, declined.

Impact on Interest Rates:

Forecasts for the July 30^th FOMC policy decision were little changed following the release of the CPI report. According to data from the Chicago Mercantile Exchange's Fed Watch Tool, prior to the release of the CPI report, futures markets were pricing in a 93.8% chance of no policy change at the FOMC's July policy meeting, with just a 6.2% chance of a rate cut. Following the release of the CPI report on July 15th, the probability of a July rate cut further dwindled to 2.6%.

Markets' expectations for a Fed rate cut had already been tamed in recent weeks after the June jobs report provided further evidence that the US labor market is holding steady and reinforced the Fed’s consensus of a wait-and-see approach on cuts.

The latest CPI data has reinforced these market expectations; however, divisions on the ideal timing of rate cuts have started to emerge among FOMC members in recent weeks. Some members expect tariff effects on prices to be likely transitory, while others are reserving judgment until more data comes in.

Forecasts for the year-end Federal Funds Rate were also little changed. Markets continue to forecast that we're likely to see two or more 25-basis-point rate cuts this year, but the probability of this outcome has declined slightly over the past day.

On July 14th, one day before the CPI report was released, futures markets were pricing in a 71.2% chance of two or more rate cuts in 2025, but this fell to 62.8% once trading began on July 15^th.

What it Means for Rental Housing:

The medium-term interest rate outlook is having increasing implications on the US housing market, which has shown signs of stagnating homebuying demand and declining builder sentiment.

As Mark Zandi, Chief Economist at Moody's Analytics, noted in a recent post, home sales that have taken place amid today’s high mortgage rates have been heavily supported by discounts from homebuilders, who have become gradually constrained by costs and are increasingly delaying or abandoning land purchases. Absent a reduction in rates, homebuying demand is likely to continue suffering.

Such pricing-out of homebuying is likely to sustain rental demand as more households remain renters for longer. Additionally, if builder activity continues to decline, constraints on housing supply would intensify, providing greater income stability for Multifamily assets.

Simultaneously, however, affordability challenges for renters would grow. Data from the Chandan Economics-RentRedi June 2025 Rent Collections Report shows that national rent collections continue to worsen, with the on-time rent rate declining by four percentage points since a post-COVID peak in April 2023.

During times of economic stress, housing expenditures tend to remain stable relative to more discretionary items. However, delinquency is rising in other areas of the economy, such as credit cards and student loans. It could have a spillover effect if job and wage growth weaken too quickly. Recent dovish concerns from some FOMC officials indicate that they are aware of these emerging downside risks to demand, but the uncertainty of tariff risks to inflation remains, on balance, more of a concern—for now.