Why So Many Are Leasing And Not Selling (and why it matters)

(Hollywood Hills Home Leased in 2021)

There is a saying in real estate that one should “Date the rate and marry the house”. That in recent years has been turned upside down. In the spring of 2022, once the interest rates shot up, the trend changed. Now we are seeing owners date the house and marry the rate. From the pandemic 2020’s high unemployment and the government’s fear of a recession, we saw record low interest rates, with many homeowners refinancing into 30 year fixed mortgages at around 3%--or even lower--interest rates. Now, and as explained here, we are seeing what is called “The Lock In Effect” 

Where people don’t sell their homes as they are married to that interest rate. If life changes cause them to need to move, they will lease out the house. As this article speaks about, this trend has heavily impacted home values, people deciding to rent and not sell has created a lack of supply and lack of supply is why prices, despite high interest rates, have more or less held. 

We are seeing would-be sellers become landlords and would-be buyers become renters. If someone is relocating due to work or other life changes, normally they would sell. Today to hedge against the chance that they might return and have to purchase in the relatively high interest rate environment they are leasing the home out, enjoying some cash flow and staying married to their interest rate.

In Los Angeles most Realtors have a business which is based on representing Buyers and Sellers which, similar to me, includes a couple home leases a year. A city like New York always saw more Tenants hiring realtors and paying a fee, as the city has always had a robust and competitive market for rentals. This shift in amount of homes being rented, can be seen when comparing the amount of homes I have leased in the 6 years prior to 2020, compared to the last 5 years post 2020 (including this year still not finished):

This is in line with California Association of Realtors 2019 prediction that in the next two decades our state will flip to a predominantly renter state. This mortgage rate inspired rental trend coincides with more remote work opportunities, where people can work from different locations and don't want to be tied down to a purchase if only trying a city out. 

I really enjoy working as a Leasing agent, and welcome the increased opportunities to do that. As a landlord myself, and know the importance of filling your property with great tenants in a timely manner.  Similar to selling a home, there are a lot of steps to take when leasing a property, which I detail here.