Renting More Profitable than Selling for Existing Homeowners

renting

Traditionally, existing homeowners have sold their old home when moving to a bigger place. However, due to the housing market crisis of 2007 and 2008 which has still not been fully overcome, this trend has changed. Now more and more people who upgrade to a bigger house prefer to rent their previous home.

There are two major factors determining the greater profitability of renting. The primary one is the wide availability of extremely affordable mortgage refinance deals between 2011 and 2013. During this period, the mortgage rates fluctuated around the historic low of 3.4%. Throughout the period, some 19% of existing homeowners either refinanced their existing mortgage loan or took out another one to purchase a new home. Many homeowners who chose either one of these options secured even lower rates starting from as low as 2.5%.

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Since mid 2013, the rates have risen by 1 percentage point despite recent declines. This has made many people unwilling to give up the favorable mortgage conditions which they secured previously. At the same time, the higher mortgage rates and the recently introduced tighter lending standards have put many prospect homeowners off buying a house. This has a positive impact on the demand for rental units and on the rental rates as well.

The increase in the rental rates is another major factor causing homeowners to become landlords. Over the past 8 years, the rental rates have increased by 20% nationwide. Throughout the same period, house prices have fallen by 21%, despite their increase over the past year. According to analysts, the higher rental rates enable homeowners who are underwater to improve their situation while waiting for the housing market to recover fully.

The trend for homeowners to become landlords will remain steady until the complete recovery of the housing market defined by higher home prices and high demand. At this point, homeowners will find it more profitable to put their homes for sale.

Christian

Christian

Christian Calvin mortgage Christian is a contributing writer for Mortgage.info. He is a graduate from the University of Tennessee with a degree in Communications and a concentration in Broadcasting. Christian has served as vice-president for a privately-held company for more than 20 years. Additionally, he has also applied his writing and business knowledge to various websites with a focus on business and sports news . . . both of which are passions. Christian enjoys playing golf and spending time with his family and friends.

Contact: christian@mortgage.info
Christian

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