Will Rent Prices Go Down in 2023?
Renters are wondering whether rent prices will fall or rise in 2023.
So far, this fall season, according to 3 major sources (Realtor, Zumper, Redfin) rent growth is decelerating. Here, we look into whether that decline can continue.
However, there are a number of factors that make the next 6 months different (construction stopped, supply running out, homeownership market plummeting). Will the economy sink, job losses mount (unemployment is low and jobless claims dropped last week in latest October report), and Fed continue with record interest rate hikes?
There are voices suggesting the Fed won’t go higher than 5%, so that would suggest a limit to the economic mayhem and drag on the rental market.
It’s many other pressures that make it appear that rent prices may rise in 2023. Zumper’s most recent stats (below) for 2 bedrooms showed rising rents.
Some Cities Seeing 6% Rent Growth from August
Even during the last few months, in some cities, rent growth is 6% month over month, which is not supposed to be happening given interest rates are climbing at record pace and landlords are being hit with higher costs.
It could be housing market experts are underestimating the demand vs supply equation.
Consider that some expect the economy to rebound in 3rd quarter in 2023, while others suggest the recession will happen then, and into 2024.
It’s demand vs supply, and squashing demand for rentals is an impossibility as you’ll see in the report below.
In its most recent September rental market trends report, NAR points out:
- September 2022 was the 2nd consecutive with single-digit rate growth for studio to 2 bedroom properties (7.8% Y/Y).
- asking rents in the 50 largest metros declined $12 to $1,759, down $22 from July’s peak.
- some large cities had big rent price growth including Chicago, IL (23.9% Y/Y), Boston, MA (19.9% Y/Y), and New York, NY (18.2% Y/Y)
- yearly rent growth by size: Studio: $1,483, up 10.1% ($136); 1-bedtoom up 7.7% to $1,647 and 2-bed: up 6.4% to $1,941
Lack of Supply is the Forgotten Factor
What many renters and potential rental property investors have lost sight of this year is the lack of rental housing. The market simply doesn’t have sufficient supply especially in some high demand cities. And the factor of a 2023 Fed induced recession may not remedy the rental housing crisis.
Demand for rentals is higher and as mortgage rates and mortgage lending criteria tighten, more Americans will have to look for rental units in 2023. They’ll likely be disappointed in terms of affordability and the quality of the units available.
A quick look at last month’s rent growth provided by Zumper, shows prices continue to rise in some areas. There may be a trend to two-bedroom units or more now, and supply likely isn’t present in many cities or towns.
As you can see from Zumper’s most recent data, rent prices in Augusta GA, Corpus Christi TX, Madison WI, Boston MA, Memphis TN, (see more on Nashville TN’s market) Houston TX, San Diego CA, Irving TX, Long Beach CA, Santa Ana CA and Aurora CO are still climbing.
|1 Bedroom Apartments||2 Bedroom Apartments|
|76||Corpus Christi, TX||$1,040||5.10%||23.80%||$1,350||6.30%||20.50%|
|5||San Diego, CA||$2,620||1.60%||24.80%||$3,420||4.90%||26.20%|
|10||Santa Ana, CA||$2,160||0.00%||19.30%||$2,900||4.70%||19.80%|
|17||Long Beach, CA||$1,800||0.00%||10.40%||$2,500||4.20%||19.00%|
|65||San Antonio, TX||$1,150||2.70%||9.50%||$1,450||3.60%||11.50%|
|18||Urban Honolulu, HI||$1,790||5.90%||17.00%||$2,380||3.50%||8.20%|
Learn more about Zumper’s reach to renters on our advertising page. Zumper is a prominent place to list your vacancy giving you access to quality tenant prospects.
CoreLogic’s House Rental Report
CoreLogic has been recording rent price growth in US single detached housing markets throughout 2022. However, during the last 4 months, they’re reporting a downward price trend for house rentals.
They report family home rental prices still rose 11.4% year-over-year in August. That annual growth is still about five times the rate of two years ago during the pandemic, which amounts to $400 per month added to monthly rent.
Corelogic found that Miami had a year over year increase in price of 25% with Orlando, Florida taking second place with a gain of 20.8%. Atlanta was third steepest at 11.7%. St. Louis had the lowest annual rent price growth, still a 4.2% increase. Phoenix, Austin, Tucson, Dallas saw big drops in price growth in the last year.
Corelogic expect rent prices will moderate in 2023. Their data shows the steepest drop in rents since the worst part of the 2009 recessionary drop. If this continues for the next few months, it likely will alter landlords rent price settings for 2023.
Won’t Higher Interest Rates Help?
The Fed has been raising rates for a while now, and mortgage rates have risen, thus changing homebuyers to renters, (and creating pain for small landlords) which would theoretically push rent prices upward. From a landlord’s perspective it means more demand for the few rentals available and higher cost to finance and manage.
US Consumers still have a lot of discretionary income, limited rental supply, steady wages, low unemployment, and there are plenty of jobs available which means renters may be able to afford higher rent.
New construction numbers were good in 2022, but have since fallen off due to higher lending rates for builders who don’t want to get caught overproducing and overleveraged before a recession. With increased immigration numbers, you have more people competing for what’s left.
Honolulu, Denver, Tampa, Orlando, Fresno, Omaha, Jacksonville, Minneapolis, Cincinnati, Lincoln and El Paso saw the biggest price declines in one bedroom rentals in September. We could be seeing shift in migration as both jobs and price factors impinge on where tenants decide to live.
If a recession happens as forecasted, will that drop rents?
Inflation Continues Raging
The Fed sees job losses and lower wages as its key targets for calming inflation. Inflation was 8.2% last month showing rising rates so far, haven’t had much effect. Is the cause of lower rent growth simply the result of renter fears, and expectations via media reports?
With Europe blocking Russian oil in the new year, we will likely see a big jump in energy costs here in the US and across the globe.
Rising expenses means renters will have less money for rent, yet they will likely not give up their apartment especially in New York, San Francisco, Chicago, Boston, Washington, Seattle or Miami.
Typically, it takes one full year for rent price trends to show. Renter’s leases often expire in one to two years. Still, renters will likely search for smaller units which are more affordable. If remote workers are called back to the head office from wherever they escaped to in the last 2 years, it could push prices up significantly in New York City, Boston, Miami, Atlanta, Los Angeles, Seattle, and even San Francisco.
Pandemic destination cities which attracted remote workers during the pandemic may see higher vacancy rates as 2023 progresses.
Small Business Outlook 2023
A Bank of America Survey recently showed small business owners are optimistic about 2023. The survey revealed:
- 83% plan on obtaining funding for their business
- 77% of business owners feel they can get through a recession
- 66% of small business owners expect growing revenues
- 52% plan to expand their business
- 8% plan to hire additional staff in the next year
- 31% are raising wages to attract potential employees
- 30% find it difficult to fill current job openings
Apartment Search Trends
Searches for apartments and houses for rent on Google, in the US, shows demand trends are typical. The chart below reveals the usual fall season decline which bottoms every December. If we’re seeing price rises at a time of steep demand drops, then we might conclude apartment rent prices will rise significantly next spring 2023.
Searches for houses for rent sees a very consistent pattern throughout the year. This hasn’t wavered and the shortage of rental houses, and low new construction makes it unlikely we’ll see big price drops in 2023. In fact, we may see it sink into a severe affordability crisis.
Searches for apartments (red) and houses (blue) in US during last 5 years to date October 2022.
Zumper’s Top 5 Rental Markets in September
Let’s take a look a quick look at the top five cities, which according to Zumper are:
- New York, NY. In the Big Apple, 1 bedroom rent rose .5% to $3,950, while 2 bedroom apartments rose .2 % to $4410 per month.
- San Francisco, CA rose slightly in September to $3100 per month for 1 bedroom rent prices however 2 bedroom dropped 0.76% to $4,180.
- Boston, MA. In Boston one and two bedroom rents rocketed in September to $2,890 and $3,360, respectively per month.
- San Jose, CA. Reflecting silicon valley demand, San Jose apartment rents grew; average 1 bedroom rents fell .4% to $2,770 and 2 bedroom apartments rose .6% to $3,300.
- San Diego One bedroom rents rose 1.6% to $2,620 while 2 bedroom units rose 4.9% to $3420 per month.
Large corporations are demand employees return to their headquarter locations or other offices to resume on site work. This puts a lot of employees into an uncomfortable situation, as availability and affordability in cities such as New York are very low. At almost $4,000 a month for a one bedroom in NYC, you can see how few would return to the big apple to work.
Cities That Are Seeing Rents Go Down
Cities where 2 bedroom rents have been falling are Oakland (-4.9%), Long Beach (-3.5%), Scottsdale (-5%), Portland OR (-3.6%), Salt Lake City (-3.7%), Tampa (-3%), St Petes (-4.9%), Fresno (-3.3%), and Wichita KS (-4.1%).
Biggest declines in rent for 1 Bedrooms happened in Oakland (-4.1%), Seattle (-2.2%), Chicago (-4.6%), Providence (-4.7%), Plano TX (-2.4%), Pittsburgh (-4.3%), Buffalo (-5.3%), Reno (-2.9%), Durham (-3%), Arlington TX (2.3%), Lincoln (-4.9%), and Wichita (-4.4%).
So Are Rental Home and Apartment Prices Falling?
Based on all the statistical above evidence, it appears apartment prices are falling. And the charts point to a steeper drop than we can see right now.
With less tenant income and evictions looming no doubt, a big decrease in rent prices across the nation might be at hand. Other countries such as Australia, Canada, Germany and the UK are likely going to experience the same drop.
As our economies begin to recover though, we might expect rent prices to reverse the trend. The recession could present more rental housing from being built, and this would lift prices into 2021.
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