Rental Resurgence: Navigating Real Estate Market During a Surge in Home Prices & Mortgage Rates

As home prices reach unprecedented heights and interest rates rise, an increasing number of individuals are opting for rental accommodations.

Historically, the cost of owning a home has been more unstable than renting, due to abrupt shifts in interest rates. The last instance when renting was financially more viable than buying was in the period leading up to the 2007 housing market crash, a time marked by an influx of capital into the for-sale market. This period was followed by a decade characterized by relatively low homeownership costs, thanks to basement-level interest rates and tighter lending criteria, which narrowed down the potential pool of homebuyers. Fast forward to today, and the situation is reversed.

The residential market is grappling with the aftermath of heightened housing demand from 2020 to 2022, coupled with escalating mortgage expenses.

Positing that the costs of buying and renting usually align over the long term, could it be possible for for-sale prices to decrease while rents persist in their upward trajectory? Mortgage rates are expected to soften in the forthcoming quarters, offering some respite to homebuyers. However, markets with limited supply are less likely to benefit from increased for-sale development activities. Even though the rental market might face macroeconomic challenges in the next year the persistent high cost of for-sale properties could serve as a positive influence on rental rates in the medium to long run.