Does the Zillow rent measure help predict CPI rent inflation?

N Kishor

Business Economics, 2024, vol. 59, issue 4, No 3, 220-226

Abstract: 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.

Keywords: Rent inflation forecasting; Zillow rent index; Direct forecasts (search for similar items in EconPapers)
JEL-codes: E01 E31 E37 R21 R31 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1057/s11369-024-00376-0

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