Why more homeowners are switching to landlords – News Puk

Changes in mortgage rates and housing prices in recent years have led to an increasing number of property owners renting their homes instead of selling them. According to interviews and data from Investopedia, roughly 15% to 20% of homeowners who buy a new property choose to keep their old one in the Dallas market, based on information from a real estate website called Tomo.

A significant increase in mortgage rates is a key factor driving this trend. Before the pandemic, rates for 30-year fixed mortgages were extremely low, in the 3% to 4% range. However, when the pandemic hit and the Federal Reserve cut its benchmark interest rate to near zero, mortgage rates fell even more. In early 2021, the average mortgage rate hit a record low of 2.65%, according to Freddie Mac.

As inflation picked up in late 2021, mortgage rates began to rise, reaching nearly 8% by October 2023. This spike in rates has made many homeowners hesitant to sell their properties, as 89% of mortgage holders have rates below 6 %. Getting a new mortgage would mean accepting a significantly higher rate, leading to reluctance to sell.

This phenomenon, known as the mortgage “lock-in” effect, has resulted in low inventory for sale and encouraged homeowners to rent their properties instead. At the same time, rents have risen, particularly for sought-after single-family homes, which have seen rents increase nearly 30% since the start of the pandemic, according to recent data from CoreLogic.

As a result, more and more individuals are choosing to rent out their homes to keep their mortgage rates low, even if they need to move. This situation has created a new category of homeowners known as “accidental landlords”, who unexpectedly rent out their properties.