Why more homeowners are choosing to rent rather than sell

Transcript:

‍Allie Barefoot: Welcome back to Data in Context. I’m Allie Barefoot with Cotality. The American dream has shifted from selling homes to renting them out. Not by choice, but by necessity. As high rates and flat prices stall the market, accidental landlords are emerging in cities like Dallas and Miami, opting to rent out their properties rather than sell them at a loss. But with rising insurance and maintenance costs paired with a cooling rent growth, is this a savvy waiting game or a precarious bubble? Today we’re joined by Cotality's Senior Principal Economist, Molly Boesel, to break down the data behind the shift and whether the accidental landlord could reshape the housing market. Molly, thank you so much for joining us here on Data in Context.

Molly Boesel: Yeah, thanks a lot. This is my first time.

Allie Barefoot: I know! I’ve been waiting to have you on the show, and I felt like accidental landlords was the opportune moment. So, let’s go ahead and not waste any more time. I wanted to just ask your opinion, jumping back to 2022 when rate hikes forced people into landlording. Cotality data is now showing—it's indicating—that sellers are opting to rent to avoid price reductions, sort of like recreating those last five years. So, who will be the 2026 accidental landlord, and why are they choosing to hold on to their properties instead of selling right now?

Molly Boesel: Yeah, so just to start out, like you said, this is a great topic because it says a lot about what’s happening in the economy and the housing market overall. So back in 2022, accidental landlords were created by interest rates, and in 2026, as you said, they’re created by prices. In 2022, homeowners were locked into those ultra-low mortgage rates; they didn’t want to give them up, right? Almost like, you know, bragging rights, kind of thing—but, you know, not really—but becoming a landlord was a way to move, if they had to, without giving up their historically low rates. Now, jump to 2026, that dynamic has shifted from rates to prices. Many sellers have a clear minimum acceptable price that they’ll accept. If the market won’t meet that, then they won’t sell their home. Now, you know, some of them have to move anyway, and renting out their property could become an option while they wait for prices to recover. So they’re not betting on rates coming down like they were before; they’re holding their inventory off the market, waiting for prices to improve enough to justify selling later.

Allie Barefoot: And with these accidental landlords, you know, they may already be struggling to pay two mortgages. And now they’re trying to possibly offer an incentive to get one of those tenants in because, obviously, they’re struggling to sell, and they might also be struggling to rent it out. They want to offer maybe one free month of rent. Are we starting to see—is that maybe more of like a crack in this accidental landlord strategy that we might be seeing?

Molly Boesel: So, maybe not a crack, more just like a stress test, right? Now, keep in mind, you know, we track single-family rents at Cotality. Since 2020, they’re up more than 30%. In some metros, they’re up like 50% or more still, after, you know, softening for about a year. So that’s what’s keeping a lot of these accidental landlords in the game, right? Now, offering a concession doesn’t mean that the strategy is broken; it could just reflect a short-term lease-up friction. So where this does become concerning is not the concession, but whether the math works after the tenant is in place. If the rent covers the costs—you know, all the costs—of the property, then the accidental landlording works as a temporary solution. So it’s not necessarily a failure.

Allie Barefoot: Right. And for a lot of these homeowners, I don’t think landlording was probably really ever in their future. And if a homeowner does have to move—like you said, if they have to move states, if they have to move cities—being a long-distance property manager is not as peak as one that could possibly be in the area and help if there’s any maintenance or anything like that. And so, are we kind of looking at a future quality crisis where thousands of single-family homes suffer from deferred maintenance because that accidental landlord is so far away?

Molly Boesel: Yeah, so, you know, it’s definitely going to be hard for them to do this long distance, right? Just one property, you’re not a professional at this. You know, there are people who are better able to handle this. But so maybe it’s not a looming crisis quality, mostly because there’s tenant habitability laws. And, you know, they’re different in different states, but these laws can set a firm floor under the quality, and that will keep the neglect in check. Now, what could someone do, right, if they’re trying to run their mini property business from far, far away? Well, they could hire a property manager. You know, there are definitely those companies out there. They could offer a rent discount when a tenant takes on some minor maintenance, things like that. But it is going to cut into the profit they're going to make, so they’ve got to roll all that into that.

Allie Barefoot: And when I think of renting, I think of a typical 12-month lease, maybe a 13-month lease. And what is most likely the exit plan for these accidental landlords? Do they eventually become intentional, professional landlords and get more properties? Or are they simply waiting for that 12- or 13-month lease and that tenant to leave, and then they hope the market is possibly a little bit better to sell at that time?

Molly Boesel: Yeah, so that's a great point about leases because, while these landlords aren't starting out like professionals, they do become constrained by that lease, right? And some cities have, you know, much stricter leasing laws—you need to offer the lease again to the renter. So, something definitely to keep in mind for potential landlords. Now, some will discover, you know, when the 12-month lease is up—and maybe it’s not time to sell the home, or they don’t want to sell the home—maybe they kind of enjoyed being a landlord. Maybe they’remaking a lot of money at it. They may just keep that on and professionalize, like you said. But, you know, a lot of others will wait for that first lease expiration. They’ll see what’s happening with the market—you know, are the prices better, are the rates better, do we have strong buyer demand, you know?—and then maybe sell once they see that, when the lease expiration coincides with those better times.

Allie Barefoot: And let’s create a little scenario here. Let’s say that these landlords are just waiting for a "one lease and done" situation, and boom—all of these houses that were once rental properties are now hitting the market once again. What does that do for shadow inventory if all these accidental landlords decide to all jump back into the market possibly around the same time?

Molly Boesel: Yeah, if they would all jump back in at the same time, I think it would soften prices, right? Even further than where they are now. Which, if you think about it though, considering how high home prices are, how much rent is right now—you know, just shelter costs in general are pretty high—you know, increasing inventory could bring more first-time homebuyers into the market and then start to increase in demand. So you might see a, you know, brief softening of prices a little more, but, you know, at least getting more buyers into the market.

Allie Barefoot: Which is never a bad thing.

Molly Boesel: Not a bad thing, yeah.

Allie Barefoot: Well, my last question here for you, Molly, is: if you were advising a homeowner today who is considering becoming an accidental landlord until the market is a little bit more better for them to sell, what is one economic indicator that they should be watching closely to know when it’s time to fold?

Molly Boesel: Yeah, so instead of just an economic indicator, I really think they just need to know—just see how much they’re bringing in, right? They need to watch whether the rental cash flow beats what the equity could do in a safe investment. So I’ll give you an example here. So say somebody rents their house out for $2,800 a month. After mortgages, the tax, the insurance, the maintenance, everything—say, like I said, maybe they’re hiring a property manager—what if they’re only clearing $200? That’s not very much, especially when you think about the average homeowner, or the average borrower, has about $300,000 in equity. If they—say that wasn’t—whatever price they’re going to get wasn’t quite going to meet what they wanted, but they could walk away with $300,000 in equity. If they did nothing but put that money in a CD, they could earn $1,000 a month on that. So in that example, the $1,000 or the $200, they’re really not being paid for that hassle or the risk, even, of being a landlord, right? So, you know, they just have to know their own situation, and it’s never a bad thing to take your capital and reallocate it to a better use.

Allie Barefoot: No, absolutely not. I think that if you are going to end up being an accidental landlord just because of the timing, like you said, there's a lot of factors that go into it, not just, "Hi, would you like to come live in my home for the time being?"

Molly Boesel: Exactly, exactly. And sometimes, you know, people just want to move on from that property.

Allie Barefoot: 100%, yeah. And I know this conversation is only going to continue to unfold as the market gets more accidental landlords or less, so I’m very excited to keep you right here on Data in Context, keep talking about this conversation, and see how this kind of progresses throughout the year.

Molly Boesel: Yeah, thanks for having me.

Allie Barefoot: Thank you so much, Molly. I look forward to our next conversation. Thank you again to Molly Boesel for joining us here on Data in Context, and thank you guys so much for listening. If you haven’t already, go ahead and hit that subscribe button on Cotality’s YouTube page. And if you want to find out more information, as always, head over to cotality.com/insights.