High mortgage and interest rates put pressure on Seattle’s rental market

Seattle

High mortgage rates aren’t just thinking would-be homeowners. They’re also doing a number on rent prices — and a panel of experts predict that trend will continue into 2023.

Driving the news: A majority of economists and housing experts surveyed by Zillow say they expect rents nationwide to rise faster than inflation in the next 12 months.

That’s partly because rising interest rates are making it harder for people to buy homes, putting additional pressure on the rental market, Orphe Divounguy, senior economist at Zillow, tells Axios.

What they’re saying: “As more people stay in the rental market, when their lease is up, they end up having to renew,” Divounguy says. That increases demand for rentals, fueling a rise in rent prices, he says.

By the numbers: While the scale of monthly rent hikes is slowing, Zillow’s panel of experts still predicted that rents will rise by an average of 5.4% between this December and December 2023.

That’s on top of the projected increase of 8.6% in rental prices from December 2021 to December 2022.

zoom in: Those increases could be felt more acutely in Seattle, where Zillow says the rent is already 12% higher than the national median.

Zillow’s latest monthly market survey found the typical rent in the metro area is $2,382 — up 10.4% since August 2021.
Meanwhile, single family home rentals in Seattle — posted through the rental company Dwellsy — cost a median of $3,030 per month in July. That makes Seattle one of the top 10 most expensive places in the country to rent a single family home, according to Dwellsy.

What’s next: Divounguy says that the demand for rentals is causing developers to apply to build more multifamily housing projects — it will just take time for those to come on the market.

As those projects are completed, it should continue to slow the growth in rental prices, he says.

Yes, but: Despite rising interest rates, if you are among the few who can afford to buy in 2023, you might find some breathing room, with fewer bidding wars over homes, Zillow says.

The big picture: Most experts surveyed by Zillow predict prices for single family homes will decline in the next 12 months — especially in expensive coastal markets like Seattle and San Francisco.

Those cooling prices, combined with less competition for homes, should shift the market in buyers’ favor in 2023, per the Zillow survey.

Details: While a house earlier in the pandemic might have attracted five offers, a similar home today might only have one or two offers, Divounguy says.

“If you can still afford to buy a home right now, it’s a good place to be,” he says.

But, but, but: Houses in Seattle still aren’t cheap.

If mortgage rates reach 7% — a number they are fast approaching — the monthly payment on a typical Seattle-area home would be $4,035, per Zillow.
That’s 77% more than a year ago, or an extra $1,758 per month.