Is the Rental Bubble Bursting in 2023?

Experts see a shift in renters’ favor this year, with rents holding steady, if not dropping
By EDDIE RIVERA, Editor, Weekendr Magazine
Published on Jan 11, 2023

The national and local real estate post-pandemic dialogue over the last year has naturally centered around the sale of homes, given the three-year rocket ascension of home prices, mixed with the Fed’s effort to cool things with higher prime mortgage rates.

But the bigger bubble story might be the possibility of the bursting of the rental bubble.

The national median rent increased by a total of 3.8 percent in 2022, meaning that last year represented a return to pre-pandemic levels of rent growth, after the stratospheric 17.6 percent rent increases of 2021, noted Apartment List recently. Rent growth in 2022 still ranks as the second fastest year since 2017, but it came in just barely ahead of the 3.5 percent rate from 2018.

According to Apartment List, rents fell nationally every month in the fourth quarter of 2022. Lower fourth-quarter rental rates are consistent with pre-pandemic seasonal norms, said Bloomberg recently, but the size of the declines are larger than those seen between 2017 and 2019.

Nationwide, rents fell nationally by an average of 0.9% a month in the fourth quarter of 2022, double the 2017-19 average. Rents grow by an average about 3% each year, so that suggests rents fell by 3% in the last three months of 2022, with seasonally adjusted annualized figures.

According to Apartment List, the national apartment vacancy rate rose to 5.9% in December, its highest level since April 2021, and has been rising by 0.2% a month most recently.

Locally, Pasadena has seen a rent growth of 15.0 % since March 2020. IN 2022, the month-to-month rent growth actually dropped 1.3%, according to Apartment List, with a year-to-year rent growth of 5.8%.

Nationally, rents fell by 0.8 percent over the course of December, marking the fourth straight month-over-month decline. The cooldown in the rental market is a typical seasonal trend, said Apartment List, but its magnitude has been notably sharper than what we’ve seen in the past.

This may be reflective of a broader shift in market conditions beyond seasonality alone, posited Apartment List. As a number of market observers have noted, 2023 could see a power shift back to renters, with rent prices almost standing still, if not dropping.

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