Friday, September 30, 2022 / by Dave Magua
With the frenzied housing market coming to an end, some sellers are considering putting their homes up for rent instead.
Rising mortgage rates and lower buyer demand are causing sellers to feel less hopeful about garnering high prices for their homes. As a result, they’re weighing their options when it comes to whether to wait out the market, try to sell now, or consider renting the home out for the interim.“Sellers are starting to realize that there may be a correction in prices before they level off or go up again, which could take years. The situation is more along the lines of whether they cash in and take their equity gains, hold the property as a second home or investment, or wait and see how the market reacts over the next few months,” said Brian Pearl, principal agent with the Pearl Antonucci Group in Boca Raton.
The case for renting vs. selling the home
Sellers’ feelings about the market are slowly changing as they lose the upper hand: a national survey from Fannie Mae shows that 35% of respondents said they think it’s a bad time to sell, an increase from 27% the month before.Still, many South Florida homeowners are going ahead with listing their homes for sale, wanting to take advantage of current prices as they realize that the South Florida housing market has probably reached its peak, said Amy Snook with Lang Realty in Delray Beach.
“I think they realize prices for some properties are off the all-time high but are still at record numbers and almost double what they were just a few years ago. Most realize that they can make up the difference on their purchase,” said Danny Hertzberg of The Jills Zeder Group.
But some sellers are weighing the decision to rent their properties, instead of selling, as rents are still high.“We are seeing that more now. Sellers are saying ‘I want my price, but I need to move so I will take a tenant if I can’t sell it,’” said Patty DaSilva, real estate broker with Green Realty Properties in Cooper City.
Already, 4% of sellers in South Florida have switched from selling their property to renting it, according to a survey of real estate agents done by John Burns Real Estate Consulting.
Snook estimates that about 15% of her clients are considering this option, but noted that there are certain challenges that comes with renting out a property, such as regulations from homeowners associations.
“This is such a small percentage partially because being a landlord is a totally different ballgame, and most sellers want nothing to do with that,” said Nicole Stadick, research analyst with John Burns Real Estate Consulting. “A select few are studying the market enough to see the financial opportunity and they are willing to make that long-term bet. This percentage of sellers may grow slightly, but it will always stay small.”
Buyers are also beginning to pivot towards renting again. According to that same survey, 18% of South Florida real estate agents reported getting more rental inquiries from buyers.The slight shift in sellers switching to renting is a sign of a more normalized market, said Ken H. Johnson, real estate economist with Florida Atlantic University.
“It’s not a huge impact on the supply of rental units, but taken together, we think it will ultimately help slow down or drive rents down a little bit,” said Johnson.
Is waiting out this housing market an option?
Some sellers are choosing to wait out the housing market to see what happens with prices: Hertzberg said about 10% of his clients are pausing for the longer term, while about 25% are waiting for a few months.
For sellers who feel that they missed the peak of the market, trying to wait out the current slow down probably isn’t the best idea. Experts say that it’s likely that prices will level off and the market will regain more balance, so the chances of another sharp uptick in prices probably won’t happen.
“It could take more than 5 years for them to reach their current values again, so unless they plan on keeping their property for longer than 5 years, we’re advising sellers to sell now,” said Pearl.
Agents are seeing more price reductions as sellers who had tried match prices of six months ago are having to recalibrate. “It’s a different market and we need to price it a little more realistically,” said Snook.