Dwellsy’s Rent Price Outlook: Update, Jun 1, 2023
Written by Jonas Bordo
2023 Rent Predictions
To date in 2023, neither apartment rents nor single-family home rental (SFR) rents are growing in any material way.
For the apartment space, this is nothing new. Rent for 1-bedroom apartments have been flat since the beginning of 2021.
The SFR space was VERY different coming into 2023. January ‘21 through January ‘23 saw a total of 21.8% in rent increases. That’s more than $330 per month in additional rent. Since then, however, we’ve seen only relatively small changes - just 1.5% or an extra $35 per month in additional rent growth for SFR so far this year.
It’s hard to describe that as anything but normal.
Looking at year-over-year numbers for SFR, they’re reaching into normal territory too. SFR rent in May 2023 is 4.5% above where it was in May of 2022. Higher than in a typical year, but below the level of inflation for the same period, which is hovering just below 5% through April.
For 1-bedroom apartments, the year-over-year numbers are anything but normal, given that they’re actually down 1.1% year-over-year and unchanged from January to May this year.
So, what does this all mean for rent in the balance of the year?
Every indication suggests that the Fed is slowing interest rate increases, given their success to date in lowering inflation. But, they’re not done yet, so there’s the possibility that they will find the need to push harder to get inflation down from 5% to 2%. If they do, that will likely reduce demand further.
Renters are already feeling the pressure of a slowing economy, pushing their rate of household formation into negative territory in Q1.
Supply continues to grow, particularly in multifamily, as the industry delivers near-record numbers of new apartments across the country.
Remarkably, there were more single-family home starts in the build-for-rent category through 2023 to date than there were in the build-for-sale category, which has never before happened in the data history available. This means supply is likely to be healthy and growing for the foreseeable future.
What does flagging demand plus healthy supply mean? A market that is far less likely to see material rent growth. As a result, we’re expecting the balance of 2023 to bring negligible rent increases for apartments nationwide: +/- 0% change for the year.