Rental rates skyrocket as homebuyers, sellers retreat from housing market

SEATTLE – Seattle ranks among the top 10 metro areas experiencing the fastest increasing rent rates as high interest rates lead more would-be buyers to rent and more sellers to become landlords.

According to rent.com, the increase comes down to supply and demand – the rental market is squeezed as high-income earners move to the area and high interest rates drive would-be homebuyers to rent in an area already experiencing limited inventory.

“We’ve seen a big pullback in home sales and that’s because both buyers and sellers are scared off of this market because it’s so expensive to borrow compared to how expensive it was a year ago,” said Redfin chief economist Daryl Fairweather.

According to a new Redfin report, more sellers are retreating amid falling prices and volatile mortgage rates.

“Homeowners, they don’t really have a good reason to sell right now, they’re sitting on record equity, they locked in low mortgage rates last year, so for them they can just keep paying those low monthly mortgage payments and just hold on until the housing market eventually turns around,” said Fairweather.

The average home sold for less than its list price for the first time in over 17 months during August, according to that same Redfin report.

Meanwhile, pending home sales are down 18% nationwide and new listings and total inventory are down, too.

“Buyers and sellers are reevaluating their one-year plan or two-year plan,” said Adriano Tori, founder and CEO of RexMont Real Estate.

In turn, would-be buyers are stuck as renters and would-be sellers are becoming landlords.

“We’re seeing the demand (for rentals) increasing every single month, so there is an interesting, actually, parallel to what we’ve seen in the last few years in the rental market where we’re seeing 10 (to) 15 applications for desirable (rental) property that comes up in the community,” Tori said.

Nelya Calev, a real estate agent with John L. Scott Real Estate, said she had a client who recently pulled their listing and opted to rent the property in response to the housing market changes.

“It didn’t make sense for him to drop his price to where it would sell because of what he paid for it, so we ended up pulling it off the market, renting the home and then we’ll just reevaluate everything a year from now,” Calev said.

Calev said the property was rented within a week, and the owner was able to secure a monthly rental rate higher than his mortgage, leaving him cash flow positive.

Seattle as a whole is seeing a 22% increase in year-over-year rental rates – the eighth fastest growing rental rate in the country, according to Redfin.

“Seattle’s just a desirable place to live, it really does have a lot going on for it, so when people get pushed out of the housing market, they still want to live here and that pushes up rents,” Fairweather said.

New numbers from rent.com break down the year-on-year rent increases by city.

Seattle Average Rent Prices:

• Studio - $1813 +20%
• 1 Bed – $2599 +14%
• 2 Bed – $3813 +39%
• 3 Bed – $9968 +257%

Everett Average Rent Prices:

• Studio – $2298  -1%
• 1 Bed – $1787 +18%
• 2 Bed - $2127 +38%
• 3 Bed – $2629 +36%

Tacoma Average Rent Prices:

• Studio – $1485 +6%
• 1 Bed -- $1929 +7%
• 2 Bed – $2329 +8%
• 3 Bed – $2100 +2%

The issue is compounded by a lack of affordable units.

Across the Puget Sound, Zillow currently shows nearly 5400 available rental listings. But 82% of them cost more than $1800 per month.

So, will rental prices continue to go up?

Fairweather said, “I think it will slow down just because what the fed is doing with rising interest rates, it’s going to slow down the economy overall, it’s going to fight inflation. Inflation is included in that when people have less money to spend because they have to pay more on their car payment or their credit card debt that impacts the kinds of apartments they are going to be able to rent. That will depress rents, or at least slow down the increase, but I don’t think it’s going to be good news. People are still going to struggle to afford their basic needs, especially when rents keep going up at this pace.”

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