Will Higher Mortgage Rates Make Renting More Expensive in 2023?

It's certainly a possibility.

There's a reason 2022 has been such a tough year to buy a home. The housing market has sorely lacked inventory since the start of 2022, and that's allowed sellers to command higher-than-average prices for their homes.

But it's not just higher home prices that have created affordability issues for buyers. Mortgage rates have played a big role as well.

At the start of 2022, it was possible to sign a 30-year mortgage at a rate of somewhere around 3%. Nowadays, even buyers with good credit are looking at a rate that's more than twice that high for the same loan product.

In fact, today's mortgage rates are actually the highest they've been in decades. And there's a good chance borrowing rates will remain high in 2023 as well. But that's not just bad news for home buyers. It could also spell trouble for renters. Here's why.

Rental demand could soar even more

There's been an uptick in rental demand over the past couple of years as home prices have risen to almost ridiculous levels in some parts of the country. If mortgage rates remain high in 2023, that alone could push even more prospective buyers out of the market and force them to rent homes instead. And the more demand there is for rentals, the more landlords can get away with charging.

What makes the idea of higher rent prices so scary is that rental prices are already up. So those struggling to keep up with their housing payments may be in for a world of pain in 2023.

Will you struggle to afford your rent in 2023?

If you can manage your rent costs reasonably well right now, then an increase in 2023 may not hurt you so much. An increase might make it so you have to cut back in other spending categories, but it won't necessarily be a catastrophic event.

However, if you're already on the verge of falling behind on your rent, then you may want to be proactive about it before your costs rise even more. If you're coming to the end of the lease, consider passing on the option to renew it and instead moving somewhere more affordable. (This option especially works if you have a friend with a van who can haul your stuff over to a new rental for the cost of thank-you pizza.) Or, find a roommate if you're not eager to move, or if doing so is too expensive.

As a general rule, your housing costs should not exceed 30% of your take-home pay. This holds true whether you rent your home or own it. So if your rent is putting you close to that threshold, it may be time to make a move -- before you run the risk of really struggling in 2023 in the event that rents rise even more.

Of course, there's a chance that rents will end up holding steady in the new year even if mortgage rates remain high. But it's important to gear up for a rent hike and have a back-up plan in case that ends up being your reality.