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2023 Apartment Forecast: Reasonable Rent Growth

The main headlines for multifamily news during the past couple of years were about enormous, record-breaking rent growth. Increased household formation combined with a demand for more work-from-home space drove the numbers.

But don’t expect that to continue.

“In the back half of (2022), rent growth has cooled even further, and apartment prices have now actually been falling since August,” Apartment List analysts noted in the firm’s “Rental Rewind” report. While seasonal rent growth dips are typical, “it appears the recent decline is reflecting more than just seasonality,” Apartment List analysts said.

And that decline could continue well into 2023. Both the Apartment List report and Yardi Matrix’s “Special Report: Multifamily Rent Forecast Update” indicate that the astronomical rent growths of 2021 and the first part of 2022 aren’t sustainable.

Additionally, household formation will impact rent growth. Yardi Matrix’s analytics experts explain that an anticipated slow-down in jobs (due to increases in the effective federal funds rates) will force an additional slowdown in household formation, “leading to a nonseasonal decrease in average asking rents.”

Apartment List analysts explained that the number of new households formed in 2022 remained flat. “It appears that renters are exhibiting much more caution in striking out on their own, as higher housing costs and general inflation have eroded their budgets,” according to Apartment List analysts. Also dampening demand is fear of a 2023 potential recession.

Speaking of which, the Yardi Matrix analysts are more definite in forecasting additional “job destruction” and a recession by the latter part of 2023. “At that point, we will likely start to see broad declines or stagnation in average asking rents, but not enough to offset the gains that we expect in the first half of 2023.”

On a regional note, Yardi Matrix is lowering its end-of-year expectation for most major markets, though secondary and tertiary markets (Lafayette, IN; Lubbock, TX; Midland-Odessa, TX; Knoxville, TN and the southwest Florida Coast) continue to exceed those expectations.

Meanwhile, Apartment List anticipates that rent growth in the Sun Belt states is likely to decline, while increasing in Midwestern markets. “After the spike in Sun Belt rents, the Midwest may now be the nation’s last bastion of rental affordability and seems to be drawing interest from price-conscious and geographically flexible renters,” the Apartment List analysts commented.


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About Amy Wolff Sorter

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