Rising mortgage interest rates can price many would-be homebuyers out of the market.
A decreasing number of buyers means sellers may not have the upper hand.
Some sellers are postponing selling their homes and renting them out instead.
Over the past few months, the housing market has started to shift. In many areas, last year's hot seller’s market has cooled as home sales decline.
Some homeowners have decided to rent out their homes instead of selling in this less-competitive market. Here’s a closer look at some of their reasons.
Cooling housing market
After a heated seller’s market, rising mortgage interest rates are putting pressure on the housing market. Every time mortgage interest rates rise, more would-be home buyers can be pushed out of the market due to higher homeownership costs.
And as buyers leave the market, housing prices have been cooling off. In fact, the median home sale price has dropped by about 6% from June to August 2022.
With prices coming down, it’s no surprise that some sellers aren’t willing to list their homes right now. Many see renting as a more immediate and competitive way to generate income from their home.
Creating an income stream
By renting out their homes, sellers miss out on the lump sum that comes with an outright sale, but it’s still possible to get a steady stream of income.
In some cases, rent may cover most or all of the costs associated with homeownership. Some homeowners might even be able to make a monthly profit, depending on their situation.
Of course, being a landlord isn’t an entirely passive occupation. But for some, the time costs will be worth the rewards.
If a homeowner can afford to hold onto their property, they may continue to build equity for years to come. Ultimately, this could lead to a bigger payday when the seller does finally decide to offload the property.
What should sellers do?
In this cooling market, renting out your home could give you the time you need to ride out the market volatility. If you’re willing to wait, the market may rebound. At that point, you might be ready to sell the property or realize that you enjoy the extra income stream created by the rental.
Of course, this is only an option for sellers in a strong enough financial position to cover the down payment or rental payments for their next home without relying on the proceeds from their current home’s sale. Without a strong financial foundation in place, sellers choosing this option run the risk of stretching themselves too thin. You should always consider the risks associated with homeownership and rental properties, and speak with a financial professional before making a decision.
This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.
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