Johnson Tsai’s business is typically 50-50: evenly split between representing buyers and fulfilling leases in New York. Soaring mortgage rates have changed this dynamic.
“Given the current market, my business is made up of at least 60% tenants, and the remaining 30-40% are buyers and sellers,” said Tsai, a brokerage agent. REAL New York. Tsai expects this trend to continue into 2023 and likely widen when New York’s rental market picks up in early spring.
As mortgage rates hit their highest levels in decades, potential buyers are increasingly finding themselves on the sidelines. In fact, the number of renters who can even afford to buy a home at the national median list price of $425,000 from a year ago is down about 15%, according to the National Association of Realtors.
“The monthly mortgage payment is about $1,000 higher than a year ago,” said Nadia Evangelou, an economist at trade group Realtor. “So current buyers need to make about $40,000 more to buy the house at the median price than buyers who bought their house a year ago.”
As a result, many potential buyers are choosing to continue renting until mortgage rates improve.
“It almost always makes more sense to rent if it’s short-term accommodation or if you need the flexibility to move at any time. But now renting makes financial sense for a larger part of the population,” said Chen Zhoa, the team leader. from Redfin economic research, said. “Potential first-time home buyers who don’t have the money for a big down payment can keep renting because they don’t want a huge mortgage and the risk of sinking when a recession looms. Also consider how you make your money work: renting makes more sense if you can put what you would have used as a down payment into another investment that is likely to grow in value.
While renting makes financial sense for most potential buyers these days, it’s a tough break for real estate agents. Very few agents get rich outside of the rental market – depending on the market an agent operates in, the commission on a rental property often ranges from 25% to 50% of a full month’s rent. However, if the property has a listing agent, depending on the negotiated agreement, that 25-50% is often split 50/50 between the listing agent and the tenants agent.
While tenant agents are common in the highly competitive New York City rental market, they are less common in other markets, as tenants typically locate potential rental properties and negotiate their rental agreements themselves. For many agents, when a potential buyer decides to rent, they completely forfeit a commission.
With the Federal Reserve Interest rates are expected to rise at least twice more over the next few months and house prices decline only slightly thanks to tight inventories, industry experts believe demand for rental accommodation will remain high for the foreseeable future. . According to data from the National Multifamily Housing Council and the National Apartment Association, an additional 4.3 million multi-family units are estimated to be needed by 2035.
Although Georgia-based Augusta eXp Real Estate Stacy Pulliam has seen a few of her potential buyers continue to rent in recent months, she remains optimistic about the future of her business. To deal with the current downturn in the housing market, she is looking to further diversify her business.
“There are so many different things you can do in your industry, depending on your interests and skills, in addition to working with buyers and sellers,” Pulliam said. “There is the government contract route, or you can go into coaching or property management. For me personally, based on my skills, I am looking for more commercial properties, as well as government contracts. »
But at the end of the day, Pulliam doesn’t see losing customers in the rental market as a loss to its long-term business.
“I’m a people person, so I want to meet new people,” Pulliam said. “By staying in touch with customers who end up renting, you can hopefully retain that customer as a future home buyer. It’s still a long-term investment. Instead of getting paid now , you invest to get paid later.