Rising Interest Rates Cause Millennials to Rent for Longer

The last few years in the real estate market presented challenges for millennials looking to purchase a home. Bidding wars and cash buyers won out over many millennials.

Unfortunately, many younger generations continue to struggle as interest rates rise. Unlike more established generations, which can often afford a higher monthly mortgage payment amount or even purchase a home with cash, most millennials and Generation Z don’t have as much flexibility.

Mortgage rates impact many factors in the home-buying process. The most significant impact is the monthly payment amount. When interest rates go up, monthly mortgage payments increase. The extra amount in the mortgage payment covers the interest.

Potential buyers can’t afford as high a purchase price for a home. Home prices may rise at a lower rate or even stabilize, especially at the higher end of the market. Also, the demand for more affordable homes increases, which squeezes supply at that level.

When fewer people can afford a home, the demand for rental properties increases.

The NY Times predicts the demand for rental properties will continue to increase as interest rates climb. Interestingly, the Federal Government wants to drive up interest rates to get inflation under control, but the impact on renters means higher rental prices.

As demand for rental properties increases, so do monthly rental rates. Not only will first-time buyers delay purchasing a home, but they’ll have to pay more for rent.

While rising interest rates pose challenges for many, real estate investors may view these changes as an opportunity. With more people renting, investors have a rich supply of tenants.

Now is a perfect time to invest in rental properties to meet the supply. Investors can feel more secure investing with the predictions of rising rental prices.

Cash buyers may have an easier time purchasing homes because they won’t need to worry about the shifting interest rates. Also, investors paying in cash may have less competition from other bidders.

Overall, now is an excellent time to own rental properties.

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