OpinionReal Estate

Opinion: The hidden opportunities of high mortgage rates

A couple of weeks ago, mortgage rates soared to a new 2023 high, reaching over 7% on a 30-year fixed-rate loan for the first time since November 2022.  While higher rates are generally viewed with dismay, they often are the end result of a strong economy. Case in point, the private sector added 497,000 jobs in June — more than double many economists’ expectations — while compensation climbed 6.4% from a year ago.

Yet higher mortgage rates aren’t all bad news for savvy real estate agents. Rate spikes can often uncover other opportunities, namely in the rental sector.

Opportunities in rental market

The interconnectedness of the for-sale market and the rental segment is often overlooked.  As bloating mortgage rates disqualify an increasing number of buyers, people still need a place to live, and renting is the only viable option.  

The market isn’t just plagued by high interest rates. Lofty home prices make matters worse – the median home sales price was $436,800 as of Q1 2023. For these reasons, the median age of first-time homebuyers in the United States hovers now around 36 years. That number seems likely to go up in the coming years.

This again points to the fact that renting is here to stay and could, in the foreseeable future, take up a greater footprint. Currently about 44 million U.S. households, or about 36%, are renters.

A hedge against a downturn

And therein lies the opportunity: to assist with all types of housing needs, including rentals. Many real estate agents may shy away from working with landlords and renters. But incorporating this large market segment into their business models creates a hedge against a downturn in the sales market, particularly at a time when the average rent in the U.S. stands at $2,053, up from $1,580 four years ago. 

This makes rentals even more appealing for agents as commissions are usually based on the rent price. Data shows that the estimated annual rental commission potential in the U.S. totals $30 billion when taking the total number of rentals, average rents, and commissions into consideration.

But rental commissions are only part of the story.  Helping a landlord or renter can create loyalty and a lifelong client. Many renters will eventually move toward purchasing a house, considering that 95% still desire to purchase a home.  Agents who work with rentals will be best-served in nurturing clients before other agents even enter the picture.

Once renters are ready to purchase a home, they are likely to turn to people they know, like, and trust. Forward-thinking real estate agents can play a pivotal part in a renter’s journey by providing guidance on topics such as affordability or even rent payment reporting to boost credit scores.

Agents who seize rental opportunities can make income where others cannot and in the process will create loyal clients they can help for years to come, regardless of mortgage rate fluctuations.

Michael Lucarelli is the CEO and co-founder of RentSpree.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Michael Lucarelli at [email protected]

To contact the editor responsible for this story:
Tracey Velt at [email protected]

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