Photo by Jon Ogg of construction scene looking rather messy

The Federal Reserve is expected to cut interest rates in September for the first time in 2025. While a gradual series of 25 basis point rate cuts is what the markets are expecting, one key inflationary component is actually showing deflationary pressure even while overall broader inflation is still running hotter than the Fed’s target inflation mandate of 2.0% to 2.5%.

It turns out that apartment rental rates have been contracting, enough that it may help balance some of the other inflation pressure in the economy.

The Realtor.com August Rental Report measures studios up to 2-bedroom apartment rental rates and it has been in decline for about two years now.

One key component of CPI is listed as “Shelter” and the CPI release for August showed that its shelter index increased 3.6% over the last year.

Also problematic for some inflation metrics is that August also showed the first month-over-month drop in average rents since March-2025. While this reflects an “expected seasonal slowdown heading into the fall” it highlights that there have now been two years of declining rents. This wave of downward prices was also said to be allowing renters to move for larger spaces or to save or move into a new area.

The average monthly rent of August was down 2.2% (about $38 per month) on a year-over-year basis. And to make sure that the average wasn’t skewed, the median asking monthly rent for apartments sized as studios up 2-bedroom units in the 50 largest metropolitan areas was down by 2.6% (or $46 per month) to $1,713. While this is versus the peak from August-2022, rents are still classified as being up 17% ($249 per month) versus pre-pandemic levels.

Realtor.com showed these three metros having the biggest price drops from their peaks:

• Las Vegas (-13.6%) — median rent is $1,443 versus $1,671 in its peak month of June 2022.
• Atlanta (-13.6%) — median rent is $1,436 versus $1,659 in its peak month of June 2022.
• and Austin, TX (-13.4%) –median rent is $1,572 versus $1,820 in its peak month of June 2022.

Realtor.com showed that the key driving forces are a slowing in migration trends as well as significant new multifamily supply increasing options for renters.

Will lower rates change the homebuying landscape soon? Realtor.com showed that renters are still optimistic about one day owning a home with nearly 60% reporting plans to buy a home (about 52% expect to buy within the next year or two.

Apartment rents are not the only issue inside CPI. Still, $1,500 per month is on an after-tax spending basis.