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Why Sell When You Can Collect Rent? Why Move When Rents Go Up More?

U.S. home sellers increasingly opt to hold on to their houses amid a soaring home-rental market. And renters face larger rent increases if they move.
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Annualized Rent Turnover from John Burns' Tweet Below

Annualized Rent Turnover from John Burns' Tweet Below

77% of renters renew their leases now. This is the most since John Burns started  tracking this.

And on the other end of the setup, would be sellers cannot get the absurd prices they want, so they have turned to renting their houses instead.

Why List a Home When You Can Collect Rent?

The Wall Street Journal notes In a Slowing Housing Market, Sellers Ask: Why List a Home When You Can Collect Rent?

After Mark and Melissa Reichert moved from California to Dallas, the couple put their home in the Los Angeles suburbs up for sale this summer. Yet even after they cut the asking price by $10,000, there was hardly any interest.

Instead, they decided to rent out the house. Their monthly payout now covers their ownership costs. If the housing market remains sluggish, they would likely keep the home as a rental once the current two-year lease expires, Mr. Reichert said.

“There’s just not serious buyers out there,” he said.

Talk about absurd expectations. A price cut of $10,000 for a LA suburb is not a cut at all. There may not be buyers for years at the price they want (not disclosed).

Home sellers across the U.S., discouraged by the slowing housing market and able to capitalize on the soaring home-rental market, are increasingly opting to hold on to their houses and lease them out instead.

As prospective sellers shift from selling to renting, that is pulling supply out of the for-sale market, just as the number of homes for sale was starting to rise from near record lows. The tight supply of homes for sale is a big reason why prices continue to climb even as sales decline.

Prices are not climbing. They are falling. Case-Shiller is a very lagging indicator, by at least six months and even it is showing some declines.

Data from John Burns also shows declines.

The number of home listings that were delisted without going under contract rose 58% in August from a year earlier, though the overall number remains a small portion of total listings, according to brokerage HouseCanary.

The phenomenon of delisting and renting out has become noticeable enough that John Burns Real Estate Consulting asked 1,000 real-estate agents about it for the first time. The numbers varied widely by region but were significant in some popular markets. In Southern California, 10% of home sellers switched their listings from for-sale to for-rent due to higher mortgage rates, and 9% in Texas did so, according to the survey.

Demand from renters, however, is still growing. The John Burns Real Estate Consulting survey found that 11% of prospective home buyers nationally switched in July from wanting to buy a home to renting instead. In Texas, the share of buyers switching to renting was 24%, the highest in the nation.

Price Pressures

Landlords are raising prices because they can. 

Q: What can the Fed do about this? 
A: Nothing

Shelter is an inelastic demand. So is food, medical care, medical care commodities, and gasoline (other than leisure travel), 

Shelter (rent and owners equivalent rent) makes up 31 percent of the CPI.

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Demand destruction by a Fed-induced recession is a very blunt instrument given so little of the CPI is discretionary spending. 

New Home Sales Crash Accelerates, Sales Down 12.6 Percent in July

On August 23, I noted New Home Sales Crash Accelerates, Sales Down 12.6 Percent in July

Regarding rent, the most pertinent chart is pending rental supply.

New Homes For Sale By Stage of Construction 2022-07

There's a near record low in completed homes for sale. But a near record high in units under construction.

Of the purported 464,000 homes for sale, only 45,000 are actually built. 107,000 new homes for sale have not broken ground yet and may not for a while. 

However, 312,000 have started. In isolation, completion of those homes will pressure rent prices. 

But will it be enough to matter?

Higher interest rates are not constructive for the creation of more units built on spec. 

Rent increases will likely slow later this year. But at 31 percent of the CPI, the Fed desperately needs annual increases to slow at a rate below 2 percent. 

I am not all all confident of that. 

This post originated at MishTalk.Com

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