Industry Trends: Rental Market Benefits from Rising Interest Rates

Interest rates have a powerful effect on the value of real estate, as they can ultimately influence an individual’s ability to purchase residential properties. Just as the housing market was seemingly moving toward a steady recovery, reports of rising mortgage rates have abruptly halted its progress. However, this is good news for property owners like you in the rental market.

Rising rents and diminishing vacancies have kept the rental market strong for the past several years, but as the rebounding housing market stabilized buyers once again looked into purchasing homes. However, eased federal stimulus in the mortgage market has led to a rise in mortgage rates, consequently deterring buyers and stalling the housing market rebound.

The housing market crash had already created millions of new renters, who either lost their homes to foreclosure or were apprehensive to buy property in a declining market. According to the U.S. Census, the homeownership rate fell from just over 69 percent in 2004 to 65 percent in early 2013.

Rising rates means the loss of considerable purchase power for potential buyers, causing consumers to reconsider whether the opportune time to buy is now. As mortgage rates raise by 50 to 100 basis points, many people lose the ability to buy a home.

The market will always sway between favoring renting and buying, and the influences on rates remain complex and ever-changing. However, owners currently renting out their properties can expect continued strength as mortgaged rates increase over time. Demand for rentals will remain high as it becomes increasingly difficult to buy a home, therefore rental property owners can continue to expect high demand and top dollar from renters.

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