Rents and house prices are rising at a slower pace, new data shows

Opinion

The red-hot U.S. housing market that has enriched property owners in recent years is slowing as it squeezes renters and first-time home buyers.

While rents and home prices are still rising, the pace is slowing as inflation and rising mortgage rates weaken demand. Median home prices rose 17.3 percent year-on-year in June, a sharp drop from the 19.3 percent increase recorded in May, data analyst Black Knight said. That two full percentage points was “the slowest one-month decline since at least the 1970s,” said Ben Graboske, president of Black Knight.

Rents followed a similar trend in the second quarter, with the average monthly rent for an apartment rising 9.2 percent in the three months ended June 30, according to real estate data firm Costar. That compares with back-to-back spikes of more than 11 percent in the previous two quarters.

The change comes as the broader economy slows and fears of recession loom. Housing inventories have risen in some parts of the country, as homebuyers have been held back by high inflation, analysts and real estate experts say.

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According to Jay Liebick, national director of multifamily analytics at Costar, the modest recent rental growth is “directly related to the lack of demand we’ve seen over the last 90 days.”

Mortgage rates have been rising steadily since the Federal Reserve began raising benchmark interest rates in March to cover inflation. Consumers, in turn, are paying more for staples like groceries and gas and are seeing bigger monthly payments. Saving for a down payment is also more difficult.

As a result, fewer people are looking for mortgages, with demand hitting a 22-year low in June as interest rates rise and fears of a recession grip buyers.

With landlords still raising rents and mortgages becoming more expensive, many renters find themselves playing an inflationary whack-a-mole game in order to maintain their standard of living.

Consumers remained cautious about the future but continued to spend in June.

Josh Martin, a 25-year-old tech worker on Chicago’s North Side, wants to buy a condo in the $250,000 range because “rents are crazy right now, and I’m afraid they’re going up.”

It currently costs about $1,000 for a studio apartment, but the price for a small room in the apartment complex has risen to $1,300 on its website. The median rent for a one-bedroom in Lakeview, where he lives, is $1,700, up 22 percent from last year, according to rental platform Zumper.

He’s faced with a dilemma: Is it better to buy a home in a hot market with a recession on the horizon, or stay put and risk a big rent increase? These days, it’s hard to say.

Martin was renting until Monday.

Others are trading in inflation. Penn Johnson, 62, said he sold his home in affluent Fairfield County last year and started renting it out. He owned the home for 32 years before reducing his down payment.

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“I thought I’d rent for a year and decide what to do next,” Johnson said, not realizing that the volatile housing market would raise mortgage rates by 50 percent.

He didn’t know what to do now: while renting was convenient, he didn’t want to do it forever. But nearing retirement age, he didn’t want to pay off thousands a month in mortgages either. Plus, the rent isn’t exactly cheap: he’s paying $4,200 a month for a place that used to go for maybe $3,000.

“And I’m like, ‘Darn, I’m stuck,'” he said. “I am a very successful person financially. I can buy things, but this is difficult to understand. “

He is one of many Americans who are worried about what will happen next. The Consumer Sentiment Index, the University of Michigan’s broadest measure of consumer sentiment, is at a 50-year low.

For sellers, it marks the end of the “name your price” era. Johnson, who works in home loans, says many sellers are accepting offers below asking price.

“[Sellers] They felt they had a lot of market power, and I think that market power was lost as the market became more balanced.

Since consumer spending accounts for two-thirds of the U.S. economy, policymakers have been watching closely for signs of contraction. So far, it hasn’t slowed much: Spending rose a healthy 1.1 percent in June, the Bureau of Economic Analysis reported Friday, up from a 0.2 percent increase in May.

But that increase came as gas prices hit a one-month high — the national average breached $5 a gallon for the first time. And there are signs that some consumers are cycling to cheaper alternatives. Discount retailers such as Dollar Tree report gaining market share over their price competitors. Others, like Walmart and Target, are reducing surplus inventory as consumers spend more of their household budgets on food, fuel and services, some of which are cutting back on shopping as a result.

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