Competition for rentals remains fierce but sky-high rents have not yet triggered a rush into new home ownership or an influx of investment.
High demand and low supply has pushed rents up 10 per cent in the major cities in the 12 months to December.
In the regions, PropTrack data shows a lift of 7.2 per cent.
Capital city listings have also sunk 26.3 per cent year on year to their lowest level since February 2003.
But while the market is experiencing a demand-supply mismatch, renters are not moving into home ownership instead.
New home loans fell 3.7 per cent for November, continuing their downward trend from record-highs in the first half of 2022.
Australian Burea of Statistics data shows lending down both for investors and first-home buyers over the month.
While home prices are falling, higher interest rates are making it expensive to borrow.
"Although property prices are decreasing and rents are increasing, it is significantly cheaper to be renting than paying off a mortgage in most cases," PropTrack director of economic research Cameron Kusher said.
But rental yields are starting to climb due to falling home prices and higher rents, hitting 3.9 per cent in December.
"Rental yields remain historically low and in many cases are offering investors very little premium over term deposit rates while property prices reduce," he said.
"It will be interesting to see if and how investors respond to improving yields."
Mr Kusher also said Sydney and Melbourne were likely to see higher rents still in 2023.
"Most of the overseas migration that will occur over the coming years will be in these two cities, which will increase demand for rental accommodation," he said.