Your Rent Could Be About to Fall. Here's Why

The red-hot rental market may finally be cooling down.

Rent was one of many costs that soared to record highs last year. Median rent tipped over $2,000 for the first time in May 2022, according to Redfin data. For renters, those dramatic increases in housing costs came on top of sky-high prices for other essentials such as gas and groceries.

But things could be about to change. In fact, we're already seeing a slowdown in the pace of rent increases. Redfin says December saw the smallest year-over-year increase in rental costs since July 2021. At $1,979, the median rent in December was 1.4% less than November. Even so, it's still 4.8% more than the year before.

Why rental prices might fall

If you're a renter hoping for some respite, supply and demand are on your side. In some areas, it looks like there'll be more available rental properties as well as less competition for rentals. Experts say this could mean there's light at the end of the tunnel for rental costs -- at least in some parts of the country.

Demand for rentals is falling

The current economic uncertainty has had an impact on rental demand. Concerns about potential job loss or financial hardship make people more reluctant to, say, move from a shared place or move out if they're living with parents.

Real estate technology platform RealPage says people aren't as interested in new rental properties right now. In fact, net demand for rental properties has just turned negative for the first time in over a decade.

In a press release, RealPage said, "After an historic wave of household formation and relocations in 2021, Americans chose to mostly stay put in 2022." It blamed high inflation and low consumer confidence and pointed out that demand for new leases had all but evaporated.

There are more rentals on the market

Another key factor? Thousands of apartment units are under construction. There are almost a million units being built right now, which RealPage says is the highest number on record. Development is highest in Dallas, Phoenix, New York, Austin, and Atlanta.

Given that it's not in landlords' interests to leave apartments unoccupied, this flood of new rentals could force them to reduce rents to get people to move in. At the very least, it will be harder to convince potential tenants to agree to pay higher prices.

How to reduce your rental costs

Many financial experts recommend you don't spend more than 30% of your income on housing costs. In theory, that will give you enough cash to cover your other living costs and still stash money into a savings account or investment account for the future. However, it can be easier said than done in the current market. Harvard research shows nearly a third of American households spend more than 30% on housing.

If your rent is eating into your living costs, don't wait for prices to come down. See if any of the following steps could help lower your housing costs.

Share with roommates

It isn't always fun to share your living space, but it can make a big difference to your bottom line. Not only will your rent cost less, but you can also split the utility bills and other household expenses. Be sure to interview potential roomies carefully, particularly on the finance front.

Show you'll be a good tenant

Think about what landlords want and how you might use these factors to demonstrate your credentials. For example, it's a hassle to find new tenants, so you could offer to sign a longer lease. You could also offer to pay your rent early or pay extra upfront, taking away another potential headache.

Look for a more affordable location

If you're willing to compromise on location, you can snag some significant savings. That doesn't mean you have to live somewhere you don't feel safe. But perhaps you can compromise on commuting times or local amenities to reduce the pressure on your bank account.

Offer your skills

If you know how to fix things around the house or are willing to help out with building administration, you could swing a rent reduction. Speak to your landlord about ways you might reduce their workload in exchange for a lower rent.

Bottom line

If rental prices do go down, it will bring relief to the millions of Americans who spend a large chunk of their incomes keeping a roof over their heads. However, it's hard to be sure about what might happen to the economy next year, as economists' predictions vary wildly. We may not enter a recession and rental costs may not fall.

All the same, if you're able to wait a little before signing a new rental agreement, it could be worthwhile. The combination of falling demand and increased supply may mean lower rents, especially if you live in an area where there's a lot of construction. Put simply, locking in a lower monthly rent could mean you have more money to spend on other things.