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Despite some good news about U.S. rent prices falling in August, the long-term outlook still doesn't seem promising.
Last month, median rent in the nation's 50 largest cities fell by $10 a month, the first drop in prices since November, according to Realtor.com's latest data.
But a one-month decline in prices isn't necessarily the start of a long-term trend. In fact, rent price growth will likely remain elevated well into 2023, says Realtor.com's chief economist, Danielle Hale. "My expectation is that rent growth will slow, but we may not see it go back to what was typical before the pandemic," she says.
Rental demand will remain strong due to rising homeownership costs, especially with mortgage expenses nearly doubling since January, Hale says. This has forced many would-be homebuyers to stay in the rental market, exacerbating already high demand. A chronic shortage of housing is another factor.
Year-over-year rental price growth will rise from 5.8%, as of June 2022, to 8.4% as of May 2023, according to a Federal Reserve Bank of Dallas forecast that uses data from the federal government's consumer price index.
Similarly, an upcoming Moody's Analytics forecast predicts a rent growth rate of 5% to 7% during that same time, says Thomas LaSalvia, a director of economic research at the financial analytics firm. Before the Covid pandemic, annualized rent price gains were about 4% to 5%, he says.
"There's an anticipation that interest rates still have to rise in the next six months for the Fed to get inflation back into its comfort zone," LaSalvia says. "And with that, mortgage rates are going to stay relatively high."
Fortunately for renters, Moody's expects price growth to taper off in the second half of 2023, provided that home financing costs decline.
"There's also an expectation that the Fed is going to pivot [away from continued interest hikes] after inflation starts to come down, which would then take a little pressure off the mortgage market," LaSalvia says. This, in turn, should provide some price relief for renters, he says.
In the meantime, Realtor.com's Hale says that renters should expect to pay more. To cut costs, renters might want to extend their existing lease if it's affordable. Renters could also consider the suburbs, where rent prices have grown more slowly than urban rentals, she says.
Lastly, renters might be able to save money by splitting a larger unit with another person, as studio apartments have outpaced price growth compared with one- or two-bedroom apartments, Hale says.