United States

High mortgage rates lock in ‘accidental landlords’

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Rising mortgage rates are impacting homeownership decisions and creating new demand for property management services.

Goldman Sachs reports that 99% of borrowers have mortgage rates lower than the current market rate of 7%, with many having rates as low as 3% – meaning that they would have to take on double the mortgage payment for a comparable home.

While they wait for rates to come down, owners of large enough properties with two or three additional units (or a vacation home) are opting to rent them out rather than sell and lose their current rate.

Meanwhile, homeowners who don’t urgently need to move are staying put – something market analysts are calling the “lock-in effect”. And in situations where homeowners need to move, increasing numbers are renting out their old property to help cover payments on their new home or rental.

These homeowners, who never intended to become landlords, have been dubbed “accidental landlords”. While there's no official count of accidental landlords, Fortune provides a few anecdotal examples.

Peter Gatto, a retired certified public accountant, plans to rent his home in the San Francisco Bay Area when he moves abroad. He would consider selling the house if he weren't fortunate enough to have a low rate (2%).

Top Dollar founder and CEO Josh Dudick doubled the value of his vacation home by renting it out instead of selling, since he'd have to pay capital gains and lose his "really low mortgage rate".

As reported elsewhere by us, new listings on Realtor.com fell 2.64% from May to June. This could be the lock-in effect in action. At the same time, ​​the national median list price grew from $441,000 in May to $445,000 in June. High prices and mortgage rates make it hard for prospective first-time buyers to afford new homes as well, effectively putting the sales market in a state of gridlock.

Appealing to accidental landlords could be a smart play for property managers. Since being a landlord isn't a top priority for these homeowners, many of them may seek out a property manager to help with or take over daily operations.

More property owner headlines

More young people are investing in residential rentals – PayProp

Highest-paid property managers by state – Zippia

The top 6 landlord-friendly states of 2023 – LawDepot

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