In a Slowing Housing Market, Sellers Ask: Why List a Home When You Can Collect Rent?

After Mark and Melissa Reichert moved from California to Dallas, the couple put their home in the Los Angeles suburbs up for sale this summer. Yet even after they cut the asking price by $10,000, there was hardly any interest.

Instead, they decided to rent out the house. Their monthly payout now covers their ownership costs. If the housing market remains sluggish, they would likely keep the home as a rental once the current two-year lease expires, Mr. Reichert said.

“There’s just not serious buyers out there,” he said.

Home sellers across the U.S., discouraged by the slowing housing market and able to capitalize on the soaring home-rental market, are increasingly opting to hold on to their houses and lease them out instead.

Higher mortgage-interest rates have reduced home-buying demand, and homes are sitting on the market for longer. Home prices have slid from their springtime peaks in some markets, and some sellers are reluctant to lower their asking prices.

And with many prospective home buyers priced out of the market, rents for single-family homes have soared in recent years.

Melissa and Mark Reichert decided to rent out their California home after moving to Dallas.

Vicky Odle

As prospective sellers shift from selling to renting, that is pulling supply out of the for-sale market, just as the number of homes for sale was starting to rise from near record lows. The tight supply of homes for sale is a big reason why prices continue to climb even as sales decline.

The number of home listings that were delisted without going under contract rose 58% in August from a year earlier, though the overall number remains a small portion of total listings, according to brokerage HouseCanary.

The phenomenon of delisting and renting out has become noticeable enough that John Burns Real Estate Consulting asked 1,000 real-estate agents about it for the first time. The numbers varied widely by region but were significant in some popular markets. In Southern California, 10% of home sellers switched their listings from for-sale to for-rent due to higher mortgage rates, and 9% in Texas did so, according to the survey.

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“People are hearing that rents are going up, so they’re saying, ‘Well if I can’t sell it for what I want, I’ll just rent it, because I’ll get a really good rent,’” said Anthony Lamacchia, who owns a Waltham, Mass.-based real-estate brokerage and a property-management company.

Homeowners often rely on the proceeds of a home sale for a down payment or to help them qualify for a mortgage to purchase a new home. New companies and products have sprung up in recent years to help homeowners buy before they sell, or buy without selling at all.

“In a market that’s flat or down, you are going to have a lot of people who probably don’t want to sell right now,” said David Friedman, chief executive of Boston-based Knox Financial, which offers loan products, property management and other services to homeowners who want to turn their homes into rental properties. “We certainly expect people to decouple when they buy from when they sell, and part of the way to do that is to rent.”

Many homeowners have locked in borrowing costs below the current average mortgage rate. By choosing to become landlords, would-be sellers are betting they can still profit from the value of their house, if rents continue to rise while their mortgage payments remain fixed.

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“Properties that we were leasing out for $1,500 last year now have pushed up by $300 to $400 a month,” said Chris Harden, broker and property manager at Re/Max Four Corners in the Dallas suburbs.

Owning rental property comes with risks, including disputes with tenants, unexpected repair costs or a slowdown in the rental market. Real-estate agents said many people renting out their previous homes are likely to sell once sales rebound, though others could choose to maintain them as rental properties indefinitely.

In the pricey suburbs of Silicon Valley, Coldwell Banker Realty agent Ramesh Rao said it is becoming more common for people to choose the rental option when they move to a new home.

“They feel that the concern of being a landlord is very much minimized, given the high quality of the tenant they can expect,” Mr. Rao said.

Turning their previous homes into rentals also helps homeowners avoid local home sales taxes, which can add up to a percentage point or more of the sale price, Mr. Rao said.

An increase in rental inventory could help flatten rent growth. Rents for single-family homes nationally rose 13.4% in June from a year earlier, slightly off from 14% year-over-year growth in April, according to housing-data firm CoreLogic.

Demand from renters, however, is still growing. The John Burns Real Estate Consulting survey found that 11% of prospective home buyers nationally switched in July from wanting to buy a home to renting instead. In Texas, the share of buyers switching to renting was 24%, the highest in the nation.

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