Good news, renters: The cost of rent isn't expected to continue rising quite so rapidly this year. For the last six months through January 2023, "[a]partment rents fell in every major metropolitan area in the U.S.," The Wall Street Journal reports, based on estimates from Apartment List, a listing website. This marks the first time in five years this consecutive monthly decline in rent has occurred.
That's not the only good news for renters this year: They can also expect to have a lot more options when apartment hunting, and more wiggle room if they're negotiating a lease renewal. Here's the full scoop on renting for this 2023.
What are rent prices expected to do in 2023?
"Measured annually, rent growth remains positive, according to most data sources," the Journal reports. However, "the pace of growth is decelerating." As an illustration of this slowdown in growth, renters who had new leases paid a rent that was 3.5 percent lower in January 2023 compared to what they would have paid in August 2022.
This prediction is backed up by Yahoo Finance, which predicts that "[i]increasing inventory, a slowing economy, and a more attractive for-sale market will help keep a lid on rent growth this year." Some experts even predict this slowdown will continue for as long as the Fed continues to slow down the economy to cool inflation. "I think we'll see very tepid rent growth until basically inflation is resolved," Daryl Fairweather, chief economist at Redfin, told Yahoo Finance. "The Fed is trying to slow the economy down, they want to slow down rent inflation specifically."
Still, these potential declines don't mean renters aren't still paying a lot. A study by Moody's Analytics released in January found that the national average rent-to-income ratio recently hit 30 percent for the first time in the study's many years of tracking the data.
What about notoriously expensive locations?
According to the Journal, "new-lease rents have fallen most sharply in some of the nation's biggest metro areas," such as Boston and Las Vegas. In fact, "none of the 52-largest metro areas tracked by Apartment List experienced positive rent growth," from August 2022 through January 2023. Similarly, Yahoo Finance reports that traditionally hot spots for renting like Los Angeles and New York saw declines in rental prices, of 0.9 percent and 3 percent, respectively.
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This downward trend might particularly apply to places that got hot during the pandemic, dubbed "pandemic boomtowns." "Pandemic boomtowns, like Austin, have already been in decline … basically since summer," Fairweather, Redfin's chief economist, told Yahoo Finance. "That's also true for Phoenix, Las Vegas, [and] a lot of the Utah boom towns. I think it depends on how trendy the place got during the pandemic — if it got trendy, it means it probably was overvalued."
Why are rents falling?
"Many tenants have maxed out on how much of their income they can devote to rent, while the specter of layoffs has created new concerns for some," the Journal says. Other potential renters are finding that prices are still out of reach for them.
Another reason is the influx of new apartments on the market. Not only can this make it harder for landlords to demand higher rents, it can give renters more options. The "share of apartment tenants who renewed leases declined in January to 52 percent, the lowest level for that month since 2018," the Journal notes. This "suggests some tenants are finding better deals at other buildings." Plus, the "pandemic boomtowns are 'just not getting the same flow,'" Mark Palim, deputy chief economist at Fannie Mae, said to Yahoo Finance.
The economic slowdown amid inflation reduction efforts is also at play, as is the state of the housing market. Yahoo Finance reports that "as mortgage rates begin to edge down, home prices moderate, and sellers offer more concessions, some sidelined buyers may jump back in" — which is good news for people who rent.
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week.
