What’s Going To Happen to Rent Prices in 2023?

Last Updated on March 6, 2023

After a challenging few years for renters, particularly for those looking for single-family rentals, what’s on deck for 2023?  Will rent prices continue to go up, or will we see moderating trends this year?

All of us at Team Dwellsy put our green eyeshades on, ran the numbers, looked in our crystal balls, and here’s our best guess based on what we’re seeing in the market.

Single Family Home Rentals (SFR)

With increases of more than 20% already in place from the past two years, we’re expecting a flat market for single family home rentals in 2023.  Here’s why:

First, the changes in consumer preferences that have caused the increase in rent prices to date have largely played out, and we do not expect them to contribute to further demand for single-family rentals.

We expect work from home–the biggest driver of increased demand for single-family rentals–to continue for the foreseeable future, and there will continue to be adjustment as those who are able to work from home realize that they can now live wherever they want.  

Pandemic pets (which drove many to look for more space) are a thing of the past, and these poor pets are being surrendered in record numbers (making it a great time to adopt a pet!).

Changes in Household Formations

Second, new household formation has declined materially, reducing demand on rentals overall.  What’s household formation? It’s when a household divides and becomes more households.  When kids move out of their parents’ place or roommates get their own places for example.

However, household formation is a funny thing in single-family home rentals.

When the kids don’t move out and get their own place, the parents still need that bigger place, so we expect the impact of lower household formation to be neutral on demand.

Third, single-family rent prices are high compared to three years ago and will continue to be high, which itself will dampen demand for single family rentals.

Fourth, we are seeing very significant new single-family home deliveries this year.  Expanding supply will naturally fill market demand and keep price increases down.  

Fifth and finally, the Federal Reserve is far from done with fighting inflation.  That means higher interest rates, potentially higher unemployment and a possible recession–all of which will combine to keep rent prices down.

Apartment Rentals

After a few years of largely flat rents for 1-bedroom apartments, we are expecting a continuation of this trend: flat to declining rent prices for apartments in 2023.  Here’s why:

First, new apartments are coming…a LOT of new apartments.  After near-record levels of new apartments becoming available in 2022, we’re on track for another year of record deliveries in 2023.  These are generally high-end apartments, but regardless, it’s economics 101 that more supply without lower demand will reduce prices.  This is a big deal and if anything makes it a renter’s market in 2023, this will be it.

Second, where decreased household formation will have a more complex effect on single-family rentals, its impact on 1-bedroom apartments is uncomplicated.  The studio or 1-bedroom apartment is the first home for most new households.  And, with low household formation, there’s less demand for these types of properties.

Third, the Fed’s actions to combat inflation will continue to drive rates up, creating insecurity for renters and reducing any appetite for increased rents.

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What do you think?  What are you expecting rent prices to do this year?  Please hit us up on one of our social channels and let us know.  We’d love to hear from you.

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