By Adam Barnes
Sky-high mortgage rates are pushing first-time homebuyers out of the housing market and back into the rental market following several big rate hikes from the Federal Reserve this year.
The phenomenon is exacerbating an already supply-crunched rental market that experts say is experiencing growth well above pre-pandemic levels.
Rental prices have fallen from their February peak, but leases remain high and experts say renters who recently moved or renewed saw large increases.
The national mortgage rate reached nearly 7 percent last week, a 16-year high that is more than double the mortgage rate seen last year.
And experts, including Fed Chair Jerome Powell, expect rates to rise further to “go through a correction” before homes become affordable once again.
Experts told The Hill interest rate increases are indeed working to slow what was a red-hot housing market. But the rise in mortgage rates is making houses unaffordable for some and forcing would-be buyers back into the rental market.
“Rising mortgage rates are keeping the pressure up on the rental market with many potential first-time homebuyers pushed to the sidelines due to affordability concerns,” Orphe Divounguy, Senior Economist at the real estate company Zillow, told The Hill.
“With fewer renters leaving the rental market for homeownership, vacancy rates remain low, keeping rental price growth somewhat elevated. Renters who have had to move recently or had to renew their lease likely saw large rent increases,” Divounguy added.
Annual rent growth is currently double pre-pandemic levels at 12.3 percent. Before the pandemic, growth was around 4 percent to 5 percent a year, Divounguy noted. A panel of Zillow experts forecasted in late September that rents will outpace inflation, stocks and home values over the next 12 months.
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