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Does Zillow Rent Measure Help Predict CPI Rent Inflation?

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  • Kishor, N. Kundan

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 while ZORI provides valuable insights into future movements in CPI rent inflation, its effectiveness is limited to periods when there is a significant disparity between these two-rent series. By employing Giacomini and Rossi's (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.

Suggested Citation

  • Kishor, N. Kundan, 2024. "Does Zillow Rent Measure Help Predict CPI Rent Inflation?," MPRA Paper 120818, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:120818
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    References listed on IDEAS

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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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    5. Marijn A Bolhuis & Judd N L Cramer & Lawrence H Summers, 2022. "The Coming Rise in Residential Inflation [The repeat rent index]," Review of Finance, European Finance Association, vol. 26(5), pages 1051-1072.
    6. Clark, Todd E. & West, Kenneth D., 2007. "Approximately normal tests for equal predictive accuracy in nested models," Journal of Econometrics, Elsevier, vol. 138(1), pages 291-311, May.
    7. Brent W. Ambrose & N. Edward Coulson & Jiro Yoshida, 2015. "The Repeat Rent Index," The Review of Economics and Statistics, MIT Press, vol. 97(5), pages 939-950, December.
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    Keywords

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    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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