High Mortgage Rates Are Quietly Building a Nation of Renters

For most of the past few years, the U.S. housing story had one plot line: buying a home kept getting more expensive. Three reports released today suggest that story is now splitting in two. On the ownership side, sellers are finally giving ground. On the rental side, demand is climbing and, in some cities, rents are moving back up. The thread connecting both is the cost of borrowing money. 

Redfin, the brokerage owned by Rocket Companies, Inc. (NYSE: RKT), found that the median U.S. asking price slipped 0.3% from a year earlier to $396,881 in the four weeks ending October 11th. That is the first annual decline since March. The drop is small, but the direction matters. A record 22% of sellers with active listings cut their price, up from 20.9% a year ago. Pending sales fell 12.7% year over year and declined in all 50 of the largest metros Redfin tracks, the first across-the-board drop in three years. 

The cause is not hard to find. The weekly average mortgage rate reached 7.4% on October 8th, a three-year high. That lifted the typical buyer’s monthly payment to $2,777, up 8.8% from last year and close to a record. When payments rise that quickly, many shoppers step back, and sellers are left competing for a smaller pool of buyers. 

Those shoppers are not disappearing, though. Zillow Group, Inc. (NASDAQ: Z) reports that rental demand, measured by activity on its rental listings, rose 19.2% from a year earlier in September. The numbers explain why. Typical rent is $1,932 a month, up 2.7%, while the typical new homeowner’s payment rose 5% to $3,037. Kara Ng, a senior economist at Zillow, describes a growing group of “deliberate” renters who choose to keep that difference rather than buy. 

What renters are looking for is telling. Demand for single-family rentals jumped 21.6%, more than double the 10.1% gain for multifamily units. Renting a typical house costs $2,266 a month, about $771 less than the monthly payment on a purchase. The median household spends 26.3% of its income on a new rental, compared with 41.3% for a new homeowner. Demand grew fastest in San Jose (82.5%) and San Francisco (66.9%). 

Realtor.com, which is operated by a subsidiary of News Corporation (NASDAQ: NWSA), adds some nuance. Across the 50 largest metros, the median asking rent fell 0.4% to $1,694 in September. That marks the 38th straight annual decline, but also the slowest drop in three years. Beneath that average, cities are moving in different directions. San Jose rents rose 6% to a record $3,565, and San Francisco rents climbed 4.8% to $3,057, as AI hiring draws young professionals to the region. Landlords there are also pulling back on perks: the share of San Jose listings offering concessions fell from 51.9% to 24.3% in a year. 

A second group of cities is rebounding for a different reason, which is price. St. Louis, Minneapolis, Virginia Beach, Riverside and Las Vegas all shifted from annual rent declines to gains as renters search for cheaper alternatives to costly nearby markets. In St. Louis, 45.4% of out-of-market rental interest came from Chicago. Sun Belt cities such as Austin, which went through a building boom, are still getting cheaper, but more slowly than a year ago. 

For investors, these reports point in two directions. Businesses that own and rent out homes, especially single-family rental operators and smaller residential landlords, could benefit from stronger demand and fewer concessions in key markets. Homebuilders face a harder setup, with buyers stretched by monthly payments and existing homeowners cutting prices to compete. Brokerages earn their money when homes change hands, so sliding pending sales weigh directly on their revenue. 

Much of this depends on where mortgage rates go next. Daily average rates eased slightly to 7.45% on October 14th, and Realtor.com expects rents to soften seasonally this fall, though with limited additional relief. A meaningful drop in borrowing costs could draw renters back into buying and reverse some of these trends. Until that happens, the rental market is absorbing many of the households the for-sale market has priced out.