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Housing Rental Market Trends to Pay Attention to in 2023

  • January 12, 2023
  • James Beeson
  • Category: National Housing Market, Property Management

As the world continues to navigate through the aftermath of the pandemic and economic uncertainty, the housing rental market trends have seen their fair share of challenges.

However, with 2023 at our disposal, property managers and landlords need to stay informed about the trends shaping the market.

Buildium released its annual property management and industry research, providing insights into the key trends we can expect to see in the rental market in 2023.

From the impact of inflation and interest rates to the changing strategies of property managers, here’s a look at the rental market trends to pay attention to in 2023.

9 Biggest Housing Rental Market Trends to Pay Attention to in 2023

Here are the top nine predictions for 2023’s housing rental market trends.

Trend #1: Investment-Minded Owners Will Increase in the Rental Market

According to a survey conducted by Buildium, Propertyware, and NARPM for their 2023 Property Management Industry Report, half of the rental property owners surveyed view themselves as strategic investors. The remaining 24% consider themselves accidental or unintentional landlords who either inherited or stumbled upon a property they couldn’t sell. In recent years, there has been a significant increase in the number of investors seeking the assistance of property managers to manage their properties.

As a result, property management companies have had to adapt to the changing needs of their clients. Today, investors are looking for more than just routine maintenance, rent collection, and eviction management services. They want to work with companies that can provide expert advice on improving their properties’ value and diversifying their investment portfolios.

Modern property management companies now offer property enhancements, local market analysis, and portfolio diversification services. Some investors even prefer to have their property managers search for new properties on their behalf.

As a property management company, it’s essential to consider how you can best meet the needs of your increasingly savvy clients. It may involve forming an in-house team or collaborating with local contractors to provide property enhancements. Additionally, reviewing and updating your marketing strategy to reflect the new services you offer is crucial.

Trend #2: Single-Family Rentals Will Still Dominate

According to recent surveys from PwC and Buildium, the demand for single-family rental homes remains strong. However, there has been an increase in the percentage of individuals residing in rural or suburban areas over the past five years, making up 68% of all respondents.

Property managers of single-family homes should consider offering desirable features to attract and retain tenants. It’s also important to remember that many renters of single-family homes may have financial challenges, such as more prominent families, lower savings, and higher levels of debt than those living in multi-family dwellings.

As we approach 2023 and the economy continues to face challenges, property managers must maintain open communication with tenants and support those who may be negatively impacted.

Trend #3: Mixed-Use Properties Will Make a Comeback

During the pandemic, mixed-use facilities – which offer a combination of residential, retail/entertainment, and commercial spaces – decreased in popularity. However, these properties are returning as development is starting to pick up again.

According to Price Waterhouse Cooper’s Emerging Trends in Real Estate 2023 report, 500 of the 1,300 malls in the United States are renovating to become mixed-use venues. These properties offer numerous benefits, including the convenience of having grocery stores, pharmacies, and hospitals nearby, as well as an array of dining and entertainment options.

Property managers with the resources and financial means to manage retail spaces may want to consider investing in a mixed-use development. Even if mixed-use properties are not currently a target audience, it is essential to understand how they could impact your current portfolio. For example, homes near commercial and residential complexes will easily access a wide range of services.

 Trend #4: Inflation is Likely to Continue in 2023

The cost of living has risen significantly over the past few years, impacting everything from groceries to fuel and heating oil. According to the Dallas Federal Reserve Bank, inflation has reached a 40-year high and continues to rise, despite predictions of slowing down in 2023. It has also affected rental properties, as a 2023 Property Management Industry Report survey found that only 26% of renters consistently paid their payments on time, while 11% reported struggling to keep up.

However, property managers have found that keeping communication open with tenants during the pandemic has helped to minimize late or missed payments. To maintain profit in the face of rising costs, managers can also renegotiate contracts and look for more cost-effective solutions for expenses such as vendor fees and overhead. Additionally, directing tenants to relevant community resources, such as federal aid programs, can provide renters support.

Trend #5: Renters Come from All Age Groups

A substantial number of American renters are now part of the baby boomer generation, growing tired of homeownership’s burdens. At the same time, the largest generation in the United States, the millennials, are increasingly entering the housing market each year, primarily in the rental sector. This trend has significant implications for the accommodations and amenities that property managers may offer their tenants.

For example, older renters will likely prioritize ease of access and mobility in their desire to age in place, making properties with amenities like elevators, ramps, and bathroom safety rails more desirable. As a result, property managers may need to make adjustments in communication, advertising, and convenience to appeal to a diverse range of tenants across different generations. Services that cater to households with members of various ages will be in high demand among renters of all ages, including baby boomers.

Trend #6: The Rise in Mortgage Interest Rates

The Federal Reserve‘s decision to raise interest rates for the fourth time in 2022, reaching a total of 7% by the end of the year, has significantly impacted the housing market.

Housing Rental Market Trends to Pay Attention to in 2023

With the potential for rates to reach 9% by 2023, as predicted by the NASDAQ, many potential homeowners are now choosing to continue renting.

Property managers should stay informed on the Federal Reserve’s actions and monitor how mortgage rates may affect occupancy rates in the future.

 Trend #7: Rent Negotiations Might Be Challenging

Many renters need help to keep up with rising living costs due to inflation in American households. To save money, some renters choose to relocate to a cheaper unit while others attempt to negotiate with their current landlords for a reduction in rent. However, our poll results reveal that these efforts are only sometimes successful.

Only 34.7% of renters surveyed said they had attempted to negotiate with their landlords, and of those, only 6.3% were successful. Many renters may not have the tools or strategies for successful negotiation.

One reason for the low success rate may be that landlords need to be open to negotiating. Our poll results show that only 14.4% of landlords are inclined to negotiate with new tenants, and only 2.6% are very likely to do so. Even with returning tenants, the success rate could be higher, with only 17.5% of landlords inclined to negotiate and only 4.4% likely to do so.

However, it is worth noting that long-term tenants, who have been in the same rental for several years, have a stronger negotiating position. Half of the landlords polled (50.6%) said they are more willing to deal with long-term tenants renewing their leases.

Additionally, tenants may be hesitant to negotiate because of the situation’s awkwardness. To increase your chances of success, it is essential to understand the negotiation process and to approach the conversation with your landlord with a clear and specific plan. While it does not guarantee a positive outcome, understanding the negotiation process can increase your chances of success in the coming year.

Trend #8: Landlords Will Look to Buy Instead of Selling

According to a recent survey, 80% of landlords have seen an increase in ownership costs over the past year, with 46% reporting a rise of more than 10% due to the current economic climate. As a result, many landlords are considering raising rents to offset these costs.

Nearly half (47.6%) of those surveyed expressed their intention to raise rents by at least 10%. However, 38% of landlords intend to raise rents, but most of these increases will be less than 5%. Despite rising property prices, 28% of respondents (an increase from 23.4% in July) are still looking to purchase one or more homes in the coming year.

Landlords remain optimistic about the rental market as it tends to be more stable and less volatile than the stock market. Only 8.3% of landlords surveyed had any intention of selling any rental properties within the next year, a decrease from 11.2% in April 2022.

Trend #9: Increase in Fractional Rental Property Investment

Recent technological advancements have led to a significant development in real estate investing – fractional ownership. Thanks to crowdfunding platforms like Fundrise, Realty Mogul, and Crowdstreet, individual investors can now invest in various properties, including residential, commercial, and industrial properties.

One of the significant benefits of fractional investment is the low barrier to entry and minimal maintenance required. As technology continues to evolve in the real estate sector, fractional investing is expected to become even more popular in the coming years.