Inflation, economic uncertainty, and the transition from the COVID-19 pandemic have undoubtedly changed the way we lived and worked in 2022. What does this mean for the real estate market? And most importantly, what’s to come in 2023?
Landlords and tenants alike must look ahead and be prepared for what’s next: from the ‘workplace home’ to smart technology and beyond.
This article will unpack 8 trends likely to shape the real estate market in the coming 12 months.
- U.S. Housing Market Outlook
- A Quick Glimpse: 2021-2022
- Trend #1: Will Rent Go Down in 2023? Probably Not.
- Trend #2: Co-living Emerges as Popular Living Model
- Trend #3: Failure to Pay Rent Has Become the #1 Reason for Tenant Eviction
- Trend #4: Landlords Are Stricter with Tenant Obligations
- Trend #5: More Landlords Are Managing Out-of-State Properties
- Trend #6: Electronic Payment Options Are on the Rise
- Trend #7: Remote Work Impacts Rental Demand
- Trend#8: Pet Owners Tend to Stay at Rental Properties Longer
2023 U.S. Housing Market Outlook
We’re all wondering: where is the real estate market heading? Economic indicators give us a glimpse.
As of November 2022, the Conference Board Leading Economic Index (LEI) had fallen for nine months in a row, indicating an ever-worsening economy. More specifically, it is reported that “only stock prices contributed positively” to the index and that many other indicators—including housing—have yet to recover economically.
Despite inflation slowing down and mortgage rates declining gradually, affordability remains a tough issue. According to the Federal National Mortgage Association (FNMA), purchasing a median-priced existing home at current mortgage rates with the median household income is the most financially challenging ever since the great financial crisis. With many other negative factors in consideration, FNMA predicts “continued declines in existing sales” next year.
For renters and landlords, that may mean renters who had otherwise planned to purchase a home may hunker down and wait for the market and mortgage rates to stabilize more.
So, what can landlords do to meet this demand? We’ve identified 8 emerging trends that will shape the dynamic between landlords and tenants in the coming months.
A Quick Glimpse: 2021-2022
Trend #1: Will Rent Go Down in 2023? Probably Not.
The average rent in the U.S. in 2022 was $1,218—over $100 more than that of 2021 ($1,095), an increase that is notable even with inflation into account. As living costs continue to rise, rent prices will likely follow in 2023.
But surging living costs might not be the only factor to blame for rent rises. Another reason for increased rent prices might be access to data from across the country about rental prices. Even online searches about rental rates have increased between 2021 and 2022.
While these searches can be helpful for landlords and renters alike, access to information could increase rent prices or make a more competitive market.
In fact, RealPage, a company that created an algorithm to help landlords push rents to the limit for the type of property they have in their geographic location, was recently sued for collusion. As a result, it is unclear how many of the rent price increases from large rental property owners were legitimately due to demand in that area.
Trend #2: Co-living Emerges as Popular Living Model
The Wall Street Journal reports that more Americans choose to live with another person. Apartment demand during 2022 fell to its lowest level in 13 years. Of those surveyed in September 2022, approximately 18% of adults reported living rent-free with a friend or relative, about 11% at the same time last year.
Consequently, Legal Templates noticed that a growing number of users turn to co-living, potentially as a solution to cut living costs.
Compared to 2021, more landlords ask whether the applicant has experience living with others in their rental applications. Moreover, Legal Templates’ total users for the templates’ room rental agreement and roommate agreement increased by 8.3% and a remarkable 23.8%, respectively. Of all roommate agreement users, almost 30% co-live with 2 or more roommates.
Renting rooms separately in cities with high demand also has its perks: landlords can charge up to 50% more on rent in a co-living arrangement than in apartments with a typical layout.
There is no denying that many potential issues could arise while sharing living spaces; however, co-living may be the only option left for renters who strive to stay in big cities. As rent prices are unlikely to fall in 2023, the co-living trend is expected to continue.
Trend #3: Failure to Pay Rent Has Become the #1 Reason for Tenant Eviction
In 2022, 45 states in the U.S. saw an increase in general evictions. That increase comes from many tenants having rental protections in 2020 and 2021 because of the CARES Act and similar state restrictions on evictions.
While eviction notices may be issued for many reasons including lease violation and holdover, there has been an increase in tenants evicted for failing to pay rent in many states.
Some significant increases include Georgia’s roughly 14% jump from 2021 (65.3%) to 2022 (79.2%). Georgia also sees 3.4 more general eviction notices created on Legal Templates per day. The state with the highest rate of renter-occupied housing units, New York, also saw a 9% increase in evictions due to failure to pay rent.
Commented Tomas Satas, Founder and CEO at Windy City HomeBuyer. “The evictions were held up for two years, and all hit this year.”
But regarding the average total rent owed by an evicted tenant, California tops the state list with an astonishing $11,102.83 in 2021 and $10,358.94 in 2022. This and the growing number of daily evictions illustrate how tenants struggle to keep up with the rising rents and how landlords are more cautious about money matters than ever.
Trend #4: Landlords Are Stricter with Tenant Obligations
As the economy remained stagnant, landlords became more protective of their rights. The average late fee for rent has increased from 2021 ($52.59) to 2022 ($58.18), and the average security deposit saw a rise of nearly $200 from $954.56 in 2021 to $1138.20 in 2022.
The increase in late fees and security deposits may result from general increases in rent prices, but it also implies that landlords are struggling just as much as tenants. New York Times reported that many midsize landlords and real estate management companies have experienced financial losses in 2022 due to skyrocketing costs, including taxes, insurance, and maintenance.
Some small landlords gave tenants a rent break during the pandemic and never received what was owed. Understandably, these unpleasant experiences have provoked landlords to become more cautious than ever.
Trend #5: More Landlords Are Managing Out-of-State Properties
The overall number of landlords managing properties out of state has increased by 1.2% between 2021 (22.1%) and 2022 (23.3%).
Some may attribute this increase to the rising living costs of many renter-packed states such as California and New York; however, other experts like David Bitton, Co-founder & CMO of DoorLoop, accredit this trend to the growth of the property management software market.
The top states that have out-of-state landlords include:
- Vermont: 31.72%
- District of Columbia(DC): 24.90%
- Delaware: 16.31%
- New Hampshire: 13.82%
- Idaho: 13.75%
- Kansas: 13.09%
- Nevada: 13.04%
- Nebraska: 12.77%
- Wyoming: 12.52%
- Oregon: 12.46%
Our findings echoed David’s comment. From 2021 to 2022, the number of Legal Templates’ users opting for property management agreements rose by about 30.1%. That might mean more landlords rely on property management companies and software to help maintain their out-of-state properties.
Trend #6: Electronic Payment Options Are on the Rise
On that account, landlords who accept electronic payments as a payment method for rent increased from 37.4% in 2021 to 40.6% in 2022. Electronic payments can be directly withdrawn from a bank account but can also include sources like Venmo, PayPal, and Zelle.
Similarly, while many landlords demand that owed rent be paid in person with cash from evicted tenants, more are also starting to accept electronic payments.
For instance, in California, the state with the most renter-occupied housing units, one in four landlords allows their evicted tenants to pay owed rent electronically. New York saw a significant 10% increase in landlords who accept electronic payments for owed rent.
Trend #7: Remote Work Impacts Rental Demand
Remote working boomed in 2020 because of shutdowns related to COVID-19. According to a survey from Owl Labs, employees who choose to work remotely have increased by 24% since 2021. Interest in in-office work, nevertheless, fell by 24%.
The growing popularity of remote work nationwide has affected the rental market in many ways. Some renters turn to more affordable housing options away from expensive cities as they no longer need to commute; some renters look for amenities necessary to work from home.
And landlords are taking note. For instance, the number of landlords that include the cost of internet access in their rent rose from 31.1% in 2021 to 33.8% in 2022. This number is expected to increase for the foreseeable future.
In addition, many landlords are also making their properties smoke-free for a more comfortable working environment: The total number of leased properties that prohibit smoking increased by almost 2% from 2021 (79.3%) to 2022 (81.2%).
Trend#8: Pet Owners Tend to Stay at Rental Properties Longer
According to the National Pet Owners Survey 2019-2020, roughly 136.4 million households had pets. As the pandemic hit and restrained many Americans from social activities in mid-2020, owning a pet became a solution for stress, boredom, and loneliness. Consequently, the number of households with pets has increased by about 20 million in the 2021-2022 Survey. The number of dogs solely accounted for almost one-third of the total increase.
Despite the remarkable growth in the number of pets across the nation during the pandemic, current data indicates a slight decrease in the number of properties that allow pets through a pet addendum from 2021 (64.9%) to 2022 (64.5%). Even the average amount of pet deposits remained roughly the same in both years.
However, it’s interesting to note that allowing pets will likely lead to a longer rental period.
Legal Templates found that tenants who stay in properties that allow pets are more stable. Specifically, in 2022, the average lease length at a property that allows pets was 551 days. By contrast, the average stay at a location that did not allow pets was 464 days—that is almost a three-month difference.
And it isn’t hard to understand why. Pets like dogs need fenced yards and large indoor spaces; parks nearby are also a plus. 43% of US households agreed they would move to accommodate their pets’ needs. Considering the limited number of pet-friendly properties and the increasing demand for them in the market, pet owners are certainly more motivated to sign a longer lease when they find the perfect place to accommodate their furry (or furless) friends.
As 2023 is upon us, renters and landlords can start planning now for upcoming rental trends—from mobile payment methods to a potential decrease in demand. While rental rates might be high, renter demands may match those higher prices.
No one can know what the real estate market will look like in 2023, but landlords and tenants need all the support they can get to navigate the upcoming changes. Legal Templates helps them simplify the legal work by enabling tenants and landlords to create the forms they need in the rental process.