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Single Family Rentals Facing Challenges in 2023


It’s bad enough that single family home sales went down in Q4 2022, but single family rentals are also taking a beating to start 2023.

To give you a brief overview of what to expect in 2023, the housing market will continue to experience rising mortgage rates, as Realtor.com predicts. Realtor’s forecast says that mortgage rates will average 7.40% this year.

It represents another huge blow for both homebuyers and real estate investors as housing affordability continues to drift further. According to the same report, existing homes’ median appreciation rate will be 5.4% year-over-year. It consequently leads to a 14.1% year-over-year decline in home sales as well as -5.4% in single family housing starts.

Although the real estate market is cooling in a lot of places, property prices continue to go up, albeit at a much slower pace. Despite the cooling down, high property prices still pose a huge challenge to homebuyers and real estate investors alike. 

On top of home affordability and inflation, it looks like the renting populace isn’t completely safe from what’s going to happen to the 2023 US real estate housing market. Renters could see rates go up by 6.3%. As rental rates go up, with no home affordability relief in sight, a lot of folks are now looking for more affordable rental properties to move into. 

It puts both property owners and renters at an impasse. While there is an increase in housing inventory caused by a lack of housing demand (or disinterest), investors do not want to be left with high monthly mortgage payments if they invest now. 

So how will the rental property market go down this year, given this deadlock?

What’s Slowing Down the Single Family Rentals?

This is an interesting question, quite frankly. 

It is such a curious case for single family rentals going into 2023. On the one hand, you have high property prices and mortgage rates that drive people to rentals. On the other hand, because of property prices and mortgages, landlords and short term rental owners are forced to raise their rates just enough to accommodate inflation. 

The cost of construction (materials, labor, and supply chains) has significantly impacted the construction of new homes. Some experts and analysts anticipate that the housing market will fail to produce in 2023. As it is, developers and contractors deem it too risky to start any new projects at this time.

Either way, renters are predicted to get it much worse than buyers this year. The projected 6.3% ascent in rental rates outstrips the gain for home prices. At this point, single family rentals are challenged by the following: 

Economic Instability

One of the main things affecting single family rentals in 2023 is the prevailing economic instability. It is no longer news how high inflation rates are today. 

In 2022, the Federal Reserve hiked rates seven times in an attempt to mitigate the adverse effects of inflation on the economy. The Fed’s aggressive stance led to consequent increases in interest rates, which carried over to the housing market. From record-low mortgage rates in 2021, we saw a very sudden upward trend last year, where mortgage rates peaked at 7.12%.

However, experts and analysts believe that there is some relief in sight as the economy slows down, according to a report from Forbes. Slower economic growth can lead to lower mortgage rates. We’ll just have to wait and see how things unfold in the next few months. 

Related: How to Get the Best Mortgage Rate for Investment Property in 2023

Faltering Home Value Growth

One of the things a lot of people are expecting to happen is a housing market crash. According to a report from Norada Real Estate, an increasing number of industry analysts are expecting a more balanced housing market this year. Many analysts expect the annual appreciation rate to slow down to single digits.

The year-over-year home price growth went down in Q3 2022. The housing market started to cool after the economy started – and continues – to shrink. Although some housing markets are at risk of crashing with falling home prices, it is not yet a cause for concern for the industry in general.

Related: Will There Be a Real Estate Housing Market Correction in 2023?

Short Term Rentals Aren’t Picking Up Like Usual

What about those who buy investment properties to convert to short term rentals? How does this news affect them?

According to a Housing Wire report, short term rental unit supply will go up by 9% versus a projected demand of only 5.5%. Investors in short term rental properties are supposedly more likely to experience a smaller revenue with a decrease of 1.6% year-over-year. 

AirDNA’s vice president of research Jamie Lane said:

So, in 2022, we saw about 20% demand growth. This year, we’re expecting [less than] 6%. That is a significant slowing.

Lane believes that a huge portion of the expected supply growth in 2023 will come from vacation rental owners and hosts who already enjoy low mortgage rates. He says that these people “maybe were thinking of moving, but they don’t necessarily want to give up their home with that 3% mortgage, so they’ll rent it out instead.

Related: How to Choose the Best Location for Investment Property

Should You Still Invest in Rental Homes?

Given the present circumstances, is it still wise to invest in single family rentals at this time?

Some are saying investors should just be patient and wait until the time is right to invest in long term and short term rentals. However, some people also say that with the increase in inventory, those who can afford to invest should take advantage of the housing supply.

At the end of the day, it will depend on your financial situation. Can you afford the higher property prices despite the cooling market? Do you have enough money for an all-cash transaction to avoid high mortgage rates? If you’re taking out a loan, can you afford to pay higher mortgage rates now? 

These are just a few of the things you need to consider before setting out to buy an investment property, regardless if it’s a single family home or a multifamily property. 

It is why due diligence should never be taken for granted when it comes to real estate investing. If you do your homework, you might be able to find a really good deal on a property in a profitable neighborhood. 

If you can get a good enough property to turn into a rental unit in an area that offers a good monthly rental income, cash on cash return, and occupancy rates, you can offset the higher mortgage rates. 

Investing in Single Family Rentals More Efficiently

This is where a real estate website like Mashvisor comes in really handy. Signing up for Mashvisor’s services will give you access to a wide range of data that covers nearly every market in all 50 states. It gathers data from highly reputable sources, including Zillow, Realtor.com, the MLS, and Airbnb. 

As far as rental property analysis is concerned, Mashvisor offers tools that will allow you to crunch the numbers using high-quality market data and information. You can perform a very accurate and realistic investment property analysis that uses actual market data and real estate comps. 

Learn how Mashvisor can help you find the best deals in the most profitable markets by scheduling a demo now.

Single Family Rentals - Mashvisor

You can use Mashvisor to find single family rentals efficiently and perform an accurate investment property analysis.

Wrapping It Up

To end, investing in single family rentals can be risky given the present global economic atmosphere, but if you do it right, you may end up with a gold mine. It really depends on how well you do your homework and the rental strategies you employ. 

To find the best deals on potential rental properties in the most profitable neighborhoods, give Mashvisor a try.

Get started on your 7-day free trial with Mashvisor today on your way to a thriving real estate investing career.

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