Interest rate changes ripple through the entire housing market, and renters feel the effects just as much as homebuyers. Understanding this connection helps renters and landlords plan ahead.
When interest rates rise, mortgages become more expensive, pricing some potential homebuyers out of the purchase market. These would-be buyers remain renters, increasing demand for rental properties and pushing rents upward.
Conversely, higher rates also discourage real estate investors from purchasing new rental properties, which can limit the growth of rental supply. This supply constraint further supports higher rents in many markets.
For existing landlords with variable-rate mortgages, rising interest rates increase their costs. Some landlords pass these increases on to tenants through rent adjustments at lease renewal.
The Federal Reserve’s decisions about interest rates are driven by inflation, employment data, and broader economic conditions. Following these economic indicators can help you anticipate changes in the rental market.
During periods of rising rates, locking in a longer lease can protect you from rent increases. If your landlord offers a two-year lease at the current rate, it might be worth considering even if it reduces flexibility.
For landlords, rising rates are an opportunity to improve tenant retention. The cost of tenant turnover, including vacancy, cleaning, and marketing, often exceeds the benefit of raising rent on existing good tenants.