‘Extreme buyer hesitation’ is pushing home sellers to pivot to renting instead of selling

Facing weak demand from home buyers, home builders and sellers are increasing their focus on the rental market. And that’s probably good news for renters.

Home sellers face a tough market. The 30-year interest rate slips past 6%, according to Daily Mortgage News TuesdayCompounded by recession fears, they are holding back buyers.

Sellers are, as a result, giving in to more concessions. One builder is even offering a “free finished basement.”

Discouraged by the weaker market, some sellers in the South and West are putting their homes on the rental market. Rick Palacios Jr., director of research at John Burns Real Estate Consulting, tweeted TWTR,

Palacios Jr. said he is seeing an increase in sellers moving from sales to rentals in California due to a rapidly cooling housing market in California, compared to the rest of the country.

“Home prices have been falling for several months in California’s major markets, and sellers realize that, so they may be inclined to change,” he told MarketWatch.

Some of these homeowners were hoping to move their home, but the cooling market is holding them back, he said.

“We know that investor transactions as a percentage of all home sales in places like Los Angeles, Orange County, San Diego, Sacramento, San Jose and San Francisco, hover around 20% to 30%,” Palacios said. jr.

“There are a lot of builders who believe the rental market can provide a hedge for a slowing housing market.”

— Ali Wolf, chief economist at Zonda

The same trend is playing out among homebuilders.

“There are a lot of builders who believe the rental market can provide a hedge for a slowing housing market,” Ali Wolf, chief economist at Zonda, told MarketWatch.

“There are builders that weren’t as active in the rental space a couple of years ago that are now working to build single-family rental homes,” he added, “because they say we can offer the house, the location, the school district in some cases. , all to a consumer without them having to worry about the initial payment”.

Wolf said he’s seeing the pivot happen where land prices are a bit cheaper and where demand remains strong, such as in Phoenix, Arizona, and parts of the South and Midwest.

In its third quarter earnings call earlier this month, homebuilder Hovnanian Enterprises submitted its pivot plans.

“Last quarter, we broke ground on our first 200-home built-to-rent community, which is selling in advance with strong margins,” Ara Hovnanian, president and CEO of Hovnanian Enterprises HOV, said on the call.

“Last quarter, we broke ground on our first 200-home rental community, which is pre-selling with strong margins.”

— Ara Hovnanian, President and CEO of Hovnanian Enterprises HOV

He added that they intend to carry out two other projects in which they plan to build 350 more homes built for rent.

“Build-to-rent is a great potential source of revenue that can help fill some of our gap in the pipeline from our traditional market for homes for sale during this time of extreme buyer hesitancy,” Hovnanian said, and “we are seeing tremendous investor interest.”

“We are very excited about our opportunities in the growing sector.”

In his opinion, houses built to rent are easier to build. And it’s easy to switch “back and forth,” the company added.

Ultimately, the move to rentals may relieve pressure on renters, who have had to deal with a tough market in recent months.

Rents are slowing down, Apartment List said in its September Rental Report, due to a “slight uptick” in vacancies. That is likely to increase as builders move further into the build-to-rent market.

Do you have any idea about the housing market? Email MarketWatch Reporter Aarthi Swaminathan at [email protected]

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