This is an excerpt from the CNBC Make It newsletter. Subscribe here.

Despite some good news about falling US rental prices in August, the long-term outlook still does not look promising.

Last month, the median rent in the nation’s 50 largest cities fell $10 a month, the first price drop since November, according to the latest data from Realtor.com.

But a month-long price decline is not necessarily the start of a long-term trend. In fact, rental price growth will likely remain high through 2023, says Realtor.com chief economist Danielle Hale. “I expect rent growth to slow down, but we may not see it return to what was typical before the pandemic,” she says.

Rental demand will remain strong due to rising ownership costs, especially with mortgage spending nearly doubling since January, Hale said. This has forced many potential buyers to stay in the rental market, exacerbating already high demand. The chronic shortage of housing is another factor.

Expect above-average rent price increases in 2023

Year-over-year rental price growth will drop from 5.8% in June 2022 to 8.4% in May 2023, according to a forecast from the Federal Reserve Bank of Dallas using index data federal consumer prices.

Similarly, an upcoming forecast from Moody’s Analytics predicts a rental growth rate of 5% to 7% over the same period, says Thomas LaSalvia, director of economic research at the financial analyst firm. Before the Covid pandemic, annualized gains in rental prices were around 4% to 5%, he says.

“Interest rates are expected to have to rise further over the next six months for the Fed to bring inflation back to its comfort zone,” LaSalvia said. “And with that, mortgage rates are going to stay relatively high.”

Fortunately for renters, Moody’s expects price growth to slow in the second half of 2023, provided housing finance costs come down.

“There is also an expectation that the Fed will pivot [away from continued interest hikes] after inflation starts to come down, which would then ease the pressure on the mortgage market a bit,” LaSalvia says. That, in turn, should provide some price relief for tenants, he says.

In the meantime, Realtor.com’s Hale says renters should expect to pay more. To reduce costs, tenants may wish to extend their existing lease if it is affordable. Tenants might also consider the suburbs, where rent prices have risen more slowly than urban rents, she says.

Finally, renters might be able to save money by splitting a larger unit with another person, as studios have outpaced price growth over one- and two-bedroom apartments, Hale says.

Register now: Be smarter about your money and your career with our weekly newsletter

Don’t miss: The #1 best city to retire to isn’t Florida, but several others in the top 10 for 2022 are

About The Author

Related Posts