The rental market is tough right now, with eager prospective tenants lining up for inspections and applications flooding in. But when will renters catch a break?
Like all things in real estate, this is a cyclic process. Just as house prices go through periods of high and low growth, so does the rental market. However, to understand where the market is heading, you first need to know where it stands today.
In December, new rental listings on realestate.com.au were down 29.2% compared to the previous month and then in January, the national vacancy rate hit an all-time-low of 0.8%. This shortage in supply has worked renters into a frenzy, snapping up properties as soon as they hit the market. Savvy landlords have taken advantage of the high demand, with the latest figures showing a 6.7% rise in rental prices across the nation in 2022.
Tenants are really feeling the pinch, but here’s some good news: based on current conditions and our experience in the field, we expect the rental market to shift in the next 6-12 months. And here’s why:
More rentals will come on the market
Better returns and low vacancy rates are very appealing to investors who have been patiently waiting for the best time to buy. We anticipate investors are likely to enter the market in big numbers, resulting in more available rental properties and greater degree of selection for tenants.
But we’re also likely to see more rentals come on the market through another avenue: those suffering mortgage stress. Higher interest rates and the rising cost of living is putting pressure on owner occupiers who bought at a high, with some turning to renting out their homes to meet their repayments or avoid selling at a loss.
We’re nearing the end of interest rate rises
Economists are predicting a 0.25 percentage point increase in interest rates when the Reserve Bank of Australia (RBA) board returns on Tuesday after a two-month hiatus over the holiday period. That would make it the ninth consecutive rise. Although we’re not quite there yet, we’re starting to see signs that we’re coming to the end of interest rate rises. The latest retail sales data suggests that Australians are finally starting to reign in their spending.
When interest rates peak, this is an indication we’re close to reaching the bottom of the market. And as any investor knows, that’s the best time to strike.
Will we see a drop in rents?
While a drop in rents is unlikely, we a 5-10% moderation may be in store. Investors will likely prevent a more significant drop, but with higher supply and lower demand, a cooling of the rental market is likely.
Advice for tenants
If you’re feeling the squeeze of high rents, our advice would be to consider moving further away from the city centre to a cheaper suburb. You may be surprised at just how much you can save by moving one suburb over – it could be between $50-100 a week, or more. With the rising cost of living, it’s also important to manage your expectations and make smart financial decisions. Remember, there’s always a cheaper property somewhere and it may not be as far away as you think.
Although the sizzling hot rental market won’t cool overnight, it will eventually shift. With a little patience, in just 6-12 months you may be able to move back into your favourite suburb, or into a more desirable home. Keep an eye on the market, be open to moving to different areas, and make informed decisions to ensure you’re making the most of your rental experience.
Statistics referred to in this article were obtained from publicly accessible and online data sources including realestate.com.au, domain.com.au and others.
Prudential Real Estate Campbelltown | (02) 4628 0033 | campbelltown@prudential.com.au
Prudential Real Estate Liverpool | (02) 9822 5999 | liverpool@prudential.com.au
Prudential Real Estate Macquarie Fields | (02) 9605 5333 | macquariefields@prudential.com.au
Prudential Real Estate Narellan | (02) 4624 4400 | narellan@prudential.com.au
