Dwellsy’s Rent Price Outlook: Update, May 2023
With a few months of 2023 behind us (and a bit of a roller coaster!), we have the ability to interpret some new information and refine our outlook for the remaining 8 months of the year.
In January, it seemed obvious that high inflation would drive the Federal Reserve on a relentless path of interest rate increases. Whether it was the regional banking struggles or that the Fed has already done enough, at this time it seems like the Fed is slowing or stopping its rate increases. If that’s the case, it seems possible that inflation may be back in control–and without the U.S. economy entering a recession.
This has been a critical external factor that was expected to batter the rental market for the year, and if that’s truly behind us, we have to look to supply and demand within rentals to make bets on the rest of the year. There, we have a classic tale of two cities, with SFR and Apartments diverging significantly.
Single Family Rentals (SFR) are seeing strong demand from renting households eager to move into properties and relatively disciplined supply growth. We saw a slowdown in rents for this property type in Q1, but a material increase in rents in April vs. March (+2.2%).
It’s important to remember that this is a fairly normal curve for this time of year. Rents tend to decline in the winter and start growing in April, continuing through the peak rental season. As a result, we’re anticipating a relatively “normal” year of rent growth for SFR properties, with increases in the 5-8% range for the year, in line or slightly above inflation, before it begins to tail off at the end of the year.
For Apartments, demand continues to lag as renters show a preference for SFR and supply is growing materially with near-record deliveries in 2023 (after near-record deliveries in 2022).
As a result, we expect 2023 to bring negligible rent increases for apartments nationwide: +/- 0% change for the year.