The Short Answer
Rent prices are currently experiencing a downturn that hasn’t been seen in the rental market in the past few years. Since the pandemic, rent prices have been rising each month, however at the start of this year they began to decline. The average rent price in the US went from $1,386 in January, to $1,343 in February this year. So, will rent prices go down in 2023?
Many investors are wondering what will become of the rental market this year, and Moody’s Analytics predicts a 2.5% to 3% rise in rent prices over the course of 2023. There are various factors impacting this, including consumer uncertainty over the economy, an influx of new apartment buildings, and interest rate uncertainty.
What Causes Rent Prices To Decrease?
Once a location has begun to decline, in other words, becomes less attractive to renters and home buyers, the rent prices will begin to decrease. This is due to the simple rule of supply and demand. The demand for rental properties in the area will decrease, and therefore landlords will struggle to find tenants as the rental market cools. So, they will need to lower the rent prices to try and attract tenants.
If consumers are feeling uncertain about the financial and economic state of the country, this can impact the rental market and housing prices. As economic uncertainty grows and fears of a recession rise, occupancy rates will typically fall and therefore rent prices will drop. Once again, supply and demand come into play, and without a high demand for rental houses, landlords cannot charge the same rent prices and they will often be forced to decrease their rent prices in order to find tenants.
Increase in Inventory
A rise in the number of homes available to rent in the housing market is a cause for rent price declines. This comes back to the supply and demand factor, where the supply is increasing, thanks to the rise in inventory. Demand won’t match the supply initially, which means that rent prices will need to decline, or landlords will struggle to find tenants thanks to the myriad of other options they have available to them.
What Causes Rent Prices To Increase?
As locations become more desirable, for example a school is built or a grocery store opens, the rent prices are likely to increase. The rise in the desirability of the area will lead to people being attracted to the location and cause a rise in the demand for the area. As such, both home prices and rent prices will increase with the demand in the local housing market.
Rising Interest Rates
As interest rates rise, so do mortgage rates, which makes homeownership unaffordable for some people. The price of car payments, credit card debt and many other costs will rise in this situation. Which means that rent prices may also rise as landlords’ expenses increase, and more people look to rent instead of buy property.
Lack of Inventory
When there is a shortage of rental properties available, landlords can charge higher rental amounts and even price out many consumers. A lack of inventory means that landlords are able to charge more as people are struggling to find places to rent. This means that renters are more likely to pay higher rent prices so that they can secure a place, instead of waiting or potentially losing out. So, lack of inventory typically leads to rent growth.
Improvements to the Rental Property
One of the biggest factors that can cause an increase in the rent price of a home is any improvements to the rental property, as well as the allowance of pets. Adding a bedroom or converting an area of the home into another bedroom will immediately lead to an increase in the rental price. Rent prices are typically based largely on the number of bedrooms, so adding a bedroom would naturally lead to a higher rent.
An increasing number of renters have pets, with some estimates even showing that at least 50% of renters have a pet. As such, landlords who allow pets on their rental properties can charge a higher rent, which includes a monthly pet fee.
As the demand for rental property increases, so the competition gets stiff, and landlords have their pick of tenants to choose from. This means that landlords can put rent prices up, and invariably rent prices overall will increase when the demand for rental property increases.
As a result of the pandemic, many people now work from home and the number of people looking for their own place to rent has increased drastically. White-collar workers no longer need to be in the office, which means that there has been an influx of movement from big metropolitans to more affordable enclaves. This increases the demand for rental properties in these areas which leads to a rise in rent prices.
What Will Happen To Rent Prices Over The Long Term?
Many investors are asking the question, will rent prices go down in 2023? If the past few years are anything to go by, the answer would be no, however this year has started out quite differently. The consumer price index is also a good indicator of changes that have been seen across various sectors.
Currently, economic uncertainty is rife amongst consumers in the US, so rent prices are declining. According to Rent.com, rent prices in the US declined by 0.25% between January and February of 2023, which is a welcome change for renters who had to undergo a surge in rent prices over 2021 and 2022.
According to Statista, the average monthly rent price in the US in February was an overall price of $1,343. This shows a significant decline from the average rent price of $1,386 in August 2022. However, rent prices still remain much higher than they were before the pandemic, even with the recent dips.
One of the biggest factors impacting the decrease in rental prices in 2023 so far, is the large uptick in the number of new rental properties. With the increase in apartment buildings, and a slight decrease in the demand for apartments, rent prices have cooled off a little. Supply and demand continue to dictate the rental prices across the board, and people are staying in their homes longer due to their economic fears, as well as higher unemployment rates.
It’s also important to bear in mind that during the pandemic, the US experienced rent price freezes and other initiatives to help tenants make it through the tough economic situation. These have since expired and renters are now experiencing a rise in prices, and some landlords are even trying to increase prices enough to make up for 2 years of losing out.
With the rest of the year still left to play out, the future of rent prices cannot be certain, however Moody’s Analytics expect rent growth of anywhere between 2.5% and 3% over the course of 2023. Then 2024 and 2025 are expected to see an increase of 3% to 4% in rent prices. The general economic uncertainty plays into this, with many people choosing to stay put for a while, instead of moving.
Can You Negotiate Rental Prices With Landlords?
The short is yes, however landlords are all in different circumstances so some may be more open to negotiating rent than others. If you have a great rental application and a good reason to negotiate the price down, then this can be done, but not all landlords will be open to it so it’s important to be sensitive to that or you could risk losing the property altogether.
Here are some tips for negotiating rental prices with landlords:
- Proving that you are reliable and financially stable to the landlord upfront will give you the grounds to negotiate on the rent price if it’s high.
- Being polite and professional is key to a negotiation of this sort. Landlords won’t appreciate an aggressive approach, so being diplomatic is the way to go.
- Highlight your good qualities as a tenant, for example a long renting history in one place with no defaults, as this will encourage a landlord to want you as their tenant.
- Let the landlord know about any other options you may have, and why you prefer their property. A landlord may be more likely to lower the rent price if they know that you have other options, and they’d like you to be their tenant.
- Compare the amenities available at the current property, versus others. One way to get the rent price decreased is if other similar properties have amenities that the current property doesn’t.
- Offer a compromise in another way, such as mowing the lawn. Landlords need rent money to cover their expenses, so if you can help with any of these, they may be more inclined to give you a decrease.
Final Thoughts On Rental Prices In 2023
As we peer into the crystal ball that is the future, it’s hard not to wonder what rent prices will look like in 2023. While no one can say for sure, there are a few factors that could impact the cost of living in the coming years, not least of which may be a cooling housing market. Factors such as the supply and demand of rental units in the housing market, changes in the economy, and evolving demographic trends will all play a major role in housing prices. So, will rent prices go down in 2023?
What happens next with interest rates and the general economic outlook for the rest of 2023 which will dictate the performance of the housing market and the year over year rent prices. The best thing that investors and renters can do is stay informed, keep an eye on local trends, and be prepared to make an informed decision when the time comes. As always, do your research, have a plan, and consult other real estate professionals if you need advice on housing prices and what the year over year comparisons look like.