North Star Properties Blog
How Rising Interest Rates and Working from Home are Affecting the Sales and Rental Markets
We are seeing continued change in the markets and how they react to each other. Typically sellers sell when the purchase demand is high and rent out their homes when this demand is lower. Typically buyers buy when interest rates are low and rent when interest rates are higher. Low mortgage interest rates of the past: have converted a large number of homes into rental homes as the mortgage rates have risen. People do not want to give up these low rates, so they are pushing their homes into the rental market, causing a supply surge.High Mortgage interest rates currently: have significantly slowed the housing sale market, as buyers are waiting for mortgage rate reductions before they buy, resulting in a large percentage of homes that have not sold converting from the sale market to the rental market.Corporate relocation: Our relocation partners tell us that their client base has greatly reduced. Rising inflation has caused local corporations to cut back their transfers, relocation packages, and subsidies. Many tenants who are looking for rentals have lowered their budgets.Supply and demand, what this means: not surprisingly the rental rates that we are able to charge are correlated by supply and demand. Right now with the homes transitioning from the sale market to the rental market, there is an increase in supply. Demand for purchases and for rentals are both a bit lower, as there are fewer corporate transfers than usual this year, which is pushing prices down. Here is what we see: Rental rates are a bit lower, as vacancy costs are worse than lower longer-term rental rates.More pets in rental properties. We estimate that with the rise of “covid pets”, almost half of the potential tenants now have pets, which is a big segment of the market. Because it is incredibly easy to register an animal as an ESA (Emotional Support Animal), a large percentage of tenants are starting to register their animals as ESA, allowing them to rent homes where pets are not allowed and without the ability to require an extra deposit. It would be advantageous to be ahead of this and consider being open to pets, in which case you may require an extra deposit. For existing tenants renewing, owners are freezing prices to keep existing tenants in place. Property owners are focusing on the equity of their properties more than the cash flow at this time. We see many owners looking to retain their homes to build generational wealth.