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Rents are Rising…Can We Expect the Same for Mortgage Rates?

Mortgage rates are still fairly low, which is quite good for buyers. The question is for how long?   A lot of analysts believe this will only last for a short time. When asked about a reason, they claimed it to be an increase in rents.

The chief economist of the National Association of Realtors told the press that there is a possibility that rates may rise because of rental inflation. He added that housing contributes the most to the consumer price inflation and if the trend continued, the overall CPI inflation will rise greater than the predicted values. Consequently, the effect will be translated onto mortgage rates and the Federal Reserve will be compelled to increase them.

In the past 12 months mortgage rates have remained pretty much the same. In all this time, the Federal Reserve slowed down on their purchase of mortgage backed securities. The gap which was created was bridged by investors, and other economical concerns were also raised.

In the rental world, rents are rising at paces that are the greatest seen in the last five years. In contrast to this, the vacancy rate is near record low.

Can rents really have an effect on the mortgage rates? Though many economists do agree, which we have already talked about, there are some that disagree. One of these said that the monetary policy has an influence in all economical aspects. Now if because of a subset of the real estate market, this was to change, it will not be appropriate.

So why do other experts have a different opinion and believe that rates will rise? They believe this because an increase in rents signals for an increase in greater financing costs and inflation tolerance. According to the Fed, the rates will probably rise later in this year, but other reasons will also back it up, rather than just the rents.

Rents are primarily on the rise because there just are not enough first-time buyers around.  In the month of May, they contributed to only 27% of home sales. Most of these people have switched to renting. As high as the rents may be, people still have no down payment or above par credit scores. Landlords have cashed in on this and are now charging higher amounts from the tenants.

Hopefully, a stronger recovery will improve the situation.


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