Its no secret that most investors and owners of rental property are curious to know what to expect with their properties during this year – whether it’s the value of their property or rental rates. And it is with good reason they are curious. Economic experts continue to express concern that due to inflation, higher interest rates and generally rising costs of living, the economy is poised for a correction. The signs are already appearing as the real estate market slows down, property values decrease and more supply in the rental market appears. This, coupled with news of layoffs at major companies, is something that is hard to ignore. Predicting anything economically, including rental rates, can be difficult as unexpected events around the world and locally can seriously affect the global economy.
According to Realtor.com:
“There are some signs indicating that it might be getting easier for many folks to buy a home. Inventory levels are still low, but there are more homes coming on the market; the bidding wars and mind-boggling offers over the asking price have died down; and buyers can once again insist on inspections, contingencies, and repairs before the deal closes.
Homes are sitting on the market for longer, so buyers can sleep on it rather than submitting an offer in the middle of an open house. Prices even dropped more than 10% in December from their peaks over the summer.
While that’s all welcome news for most first-time homebuyers, the Realtor.com® economists expect home prices will rise 5.4% year over year in 2023. (That’s on top of some already lofty prices.) And mortgage interest rates remain uncomfortably high, in the mid-6% range at last count for 30-year fixed-rate loans.
Even if prices fall, those higher rates will inflate monthly mortgage payments substantially. Those monthly housing bills are now about two-thirds larger than they were just a year ago.* Those payments are 92% more than they were just two years earlier. In other words, today’s buyers will pay about double what they would have for the same house in 2020 if they take out a mortgage.”
Thus, it is expected that the cost to purchase a home, due to interest rates and high resale values, will continue to remain that way.
What about rental rates? Rental rates typically will follow suit with resale values, since increased real estate values mean increased costs to maintain a rental property, such as higher property taxes maintenance costs. That has been the case over the last 3 years. Rents increased significantly, keeping up with higher real estate values and putting pressure on tenants. However, as the market continued to push upwards, it does eventually plateau and perhaps even soften some. That has been the case in Las Vegas. While rents were climbing to new records this past summer 2022, the market has seen a pullback. More properties came onto the rental market, increasing supply, as sellers struggled to sell properties for peak values they were accustomed to seeing. This trend continued between fall 2022 to present. According to Realtor.com:
“The rental market appears to have hit an inflection point—and not a moment too soon for many Americans who have been squeezed tight by record-setting price increases over the past few years.
Finally, the steady drumbeat of steep and often untenable increases in leases across the U.S. is slowing, and rents have even begun falling in many of the nation’s hottest real estate markets. Those declining prices are welcome news for renters who have been through the wringer. Rental prices have risen more than 20% over the past three years—while their earnings increased by only about 10%, according to Realtor.com® and U.S. Census Bureau data.
While Realtor.com economists predict that, nationally, rental prices will continue climbing in 2023, they expect the days of double-digit hikes are likely over.”
All in all, stability is expected in the real estate and rental market, though, values may adjust throughout the year some, with an overall increase projected, though modest it may be.