Hi, my name is Danielle Ohlms and I’m the broker and owner here at Keyrenter St Charles Property Management. It’s truly been an extraordinary time in the St. Charles real estate industry these last couple of years, and as things start to wind down, I wanted to talk about the St. Louis and St. Charles rental market, and where I think we’re headed as we enter 2023.
Over the last 2 years, rents have increased by an average of 25% (according to apartmentlist.com) , which really pushed renters beyond what they could afford. With the lack of inventory, values increased almost overnight. Now, we’ve seen that rental demand in 2022’s third quarter has been the worst of any 3rd quarter in over 30 years. And typically, 3rd quarter, July through August, is our strongest leasing season.
According to Costar, Apartment vacancy also rose to 5.5% in 3rd quarter, which was a 4% increase from Quarter 2. Real Page reports that apartment rents fell .6% from September to Oct, which is the 3rd largest drop since 2010.
So, what’s going on? Why is this happening here for St. Charles landlords? It’s supply and demand.
Supply is increasing in St. Louis. Why? Well, over the last few years we’ve seen a lot of hedge fund investors buying a ton of housing to rent out. There’s also upside sellers who bought in the last couple of years who will take a loss selling now, so they are renting. And then, you have some short term rentals that aren’t doing as well, so landlords are converting those to long term rentals.
Demand in St. Charles is majorly slowing down. There’s a fear of the unknown economy, and many would-be renters are now bunking with roommates or living at home with their parents for longer.
Now, there is a really big overall upside to rents decreasing. The Federal Reserve is raising interest rates to attempt to cool off real estate prices – obviously, that’s been working. The faster that price growth slows down, the sooner the Federal Reserve is likely to slow down the pace of its rate hikes, because they’re going to be comfortable that inflation is under control. So, the benefit to decreasing rent prices is that on a national level, a severe inflation may be less likely to happen.
Here’s my 2023 predictions for the landlords in the St. Louis and St. Charles rental market. We are going to continue to see a decline in rental rates, at least for the next two quarters if interest rates keep trending upward . If our economy can bounce back a bit, and provide people more confidence in the future’s economic outlook, rents will even out again – hopefully by midyear, especially if interest rates lower. Will we see rent prices we saw in 2021? Yes, but I don’t expect to see that same pricing for another few years. We had a massive, massive increase in rent prices, and that’s not sustainable, and we knew that.
So what can you do, as a landlord in St. Charles, to get as much rent as you possibly can right now? First, it’s really difficult to run rental comps right now. What a house rented for even 3 months ago is so out of date at this point. Instead, focus more on what other comparable homes are up for rent, and price slightly below those. Also, keep your rental in tip top shape – make sure it’s 100% ready for all showings. And be consistent with price reductions. Reduce by at least 5% at a time and reduce at least every 10-14 days. This will help you avoid going stale on the market. And last, and most importantly, FORGET EVERYTHING YOU KNOW FROM 2020 AND 2021. Your house rented for $2,500 in 2021? Guess what – you’re not getting that much this time.
I hope you find this helpful. As always, feel free to reach out. 636-707-2000 or visit our website keyrenterstcharles.com.