One question I get from many of our property owners and clients is, “What are rents going to do in 2023 here in the San Diego market?” As many of you know, rents have been on an absolute tear here in San Diego. We've had some significant yearly increases. Is that going to continue? While nobody has a crystal ball, there are strong indicators of what we might see in 2023. Here are the top four factors that I believe will dictate rent prices over the next year:
- Inflation. It's pushing everything higher. Have you been to a restaurant lately? The prices are shocking. Do you know that San Diego is the nation's fourth most expensive rental market? The top five are all in California. It's probably no big surprise to you; however, rents in San Diego peaked in the summer of 2022, and they've been on a gradual slide since September 2022. So our year-over-year home rent increase, which takes January 2023 versus 2022, is only 3.8%, which is surprising.
- Real estate sales. Real estate sales have slowed over the last 12 months. The number of homes sold is down 37%. That's a significant drop. We have many new clients coming to us because they're unable to sell their homes. A lot of these buyers are being chased away by super-high interest rates and other factors.
- Inventory. Because of all this, I believe the inventory of rentals is going to increase. There are nice homes that are coming online. Many of them are homes that folks lived in as a primary home, and they made them really nice, and now they need to move for whatever reason. So they've opted to rent it out for income.
- Demand. The fourth factor is at the same time that we have more supply, we have rental demand decreasing. People are tightening their financial belts. They see a possible recession coming, or they're moving in with mom and dad, or they're getting another roommate and doubling up.
More supply of homes plus decreased demand, and no bidding wars lead to mostly rent stabilization. Possibly a small drop in rent coming up, but we don't see rents crashing, and we certainly don't see them jumping up and spiking as they did here recently. So the major theme for rents in 2023 is stabilization.
If you have any questions about this topic or real estate in general, please don’t hesitate to call or email me. I would be happy to serve as your resource for all of your real estate needs.