Red-hot rental market is cooling in a good sign for inflation
Renters are on track to get some relief in 2023 as a growing number of indicators suggest the red-hot rental market has started to cool.
WASHINGTON — Renters are on track to get some relief in 2023 as a growing number of indicators suggest the red-hot rental market has started to cool, a shift that could also help bring down decades-high inflation that has been pushing interest rates higher.
Surging rental costs have been one of the biggest drivers of inflation over the past two years after year-over-year rent increases peaked at 17% last January, according to data from Realtor.com. But economists and industry analysts are expecting a significant slowdown this year driven by a wave of new apartment construction and more renters staying put amid economic uncertainty.
That shift is good news not only for renters, but for the economy as a whole. A slowdown in rent increases could help ease inflation with shelter costs making up a third of the consumer price index, which is one of the metrics the Federal Reserve uses to gauge whether to continue hiking interest rates. Those higher interest rates have made it more expensive for consumers to borrow money for big-ticket purchases, like a car or home, and for businesses needing to take out a loan to expand.
“The balance of power in the rental market has really shifted very rapidly to renters,” said Jay Parsons, chief economist for real estate technology firm RealPage. “We’ve seen that rent growth has really slowed down. We’ve now got four straight months where month-over-month new leases have actually come down. The market has really changed materially.”
In the last several months of 2022, online real estate firms Zillow, Redfin and Apartment List recorded significant drops in rental asking prices.
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