The new landlord next door

Transcript:  

Molly Boesel: We do have a nice piece on our Insights page, detailing what's been happening in California. But you've got a broader idea here of, you know, you have a lot of older people who own homes right now. You know, they may want to move, they may, you know, pass away, and their homes may be inherited. And they, you know, this has been termed the "Silver Tsunami," right? You have the older people leaving their homes and maybe flooding the market with a tsunami. But I think it's overstated, right?

Maiclaire Bolton Smith: Welcome to Beyond the Buildings by Cotality. I am your host, Maiclaire Bolton Smith, and I'm just as curious as you are about everything that happens in the property industry. On this podcast, we satisfy our collective curiosity, explore questions from every angle, and look beyond the obvious. With every conversation, we illuminate what is possible. Homeownership used to be a straightforward concept: buy a home, build equity, and sell it when you're ready to move. But things have changed. Now, homeowners have legacy low interest rates and they're in markets where buyers aren't willing to pay list prices. The result? People aren't selling homes. They're renting them out instead, even if that's not their first choice. In cities like Dallas and Miami, Cotality data found that rental inventory is increasing as would-be sellers choose to wait for a better time to sell. But with rent growth cooling and the cost of insurance, tax, and maintenance skyrocketing, is the waiting game actually sustainable?

Today, we're joined by Cotality Senior Principal Economist Molly Boesel to break down the data behind the shift and whether the accidental landlord could reshape the housing market. Molly, welcome back to Beyond the Buildings.

Molly Boesel: It’s great to be here again, Maiclaire.

Allie Barefoot: Before we get too far in this episode, here's a friendly reminder about how to see what's coming up next in the property market. To make it easy, we curate the latest insight and analysis for you online. Find us using the handle @Cotality on all of our social media channels. But now, let's get back to the show.

Maiclaire Bolton Smith: You know you are one of my favorite people to talk to, Molly, so I'm really excited to jump into this with you. So let's just start by setting the stage and really just kind of start by talking about the rental economy here in the U.S.

Molly Boesel: Yeah, so when you think about the rental economy in the U.S., we really have two kind of rental markets. On one side, you have the multi-family market, so think about large professionally managed apartment buildings. On the other side, we have the single-family rental market, which looks really different. It’s single-family homes that are rented out, and most of those are owned by individuals, not institutions. We'll get into that later, I'm sure. But that's where, that's where most of these dynamics you're talking about today are happening. And that's what we're going to focus on in this podcast: the single-family market.

Maiclaire Bolton Smith: Okay, okay. So, I mean, long story short, people are locked in. And if they can't sell a home, if they don't want to be in it, then they're really effectively just tied to this market that they must manage and they therefore become a landlord. I guess, how does the lack of mobility affect the broader market?

Molly Boesel: Yeah, so it does get kind of complicated. So first we had, you know, these really low interest rates, people don't want to sell their homes because of the low interest rates. Now, maybe they can't get the price they want for their home, so they're not selling for that reason. But, you know, like you said, it reduces mobility, right? So, you know, should they want to find a job somewhere else, they may not want to move for that. So it's going to just disrupt the entire housing market.

Maiclaire Bolton Smith: Yeah. So, I guess, I mean, ultimately, people have different reasons for wanting to move and some people still need to or want to move, even if they don't want to give up the mortgage rate that they have. And because of that, they are therefore deciding it'sa better option to rent out their home and then becoming these "accidental landlords." So, is this becoming more and more common? I know your team has done some research on this. I guess let's just break it down. Like, how is this playing out in the market right now?

Molly Boesel: Yeah, so we have seen an increase in what we call investor share. So that's, you know, one individual or entity owning three or more properties, right? So if I already owned a property and let's say I was lucky enough to have a vacation home as well, but then I needed to move and didn't want to sell my primary home, I might move somewhere, buy a new home, but rent out my old primary home and take that rent from my old property and use that to fund my new mortgage, right? Now I'm an investor. You know, I didn't intend on being one, but I'm in that investor space now. So we do show that most investors in the U.S. are these small investors, we might call them "mom and pops." So they only have three to 10 properties at once. Right? So we have seen an increase in that.

Maiclaire Bolton Smith: Right. Whereas I guess traditionally it had been the corporations and the institutional investors that were doing it, and now it's becoming more, you know, your neighbor next door might have two or three properties. I have a number of friends that have rented out their primary residence and bought another home just because they did have a low interest rate. So it is becoming more and more common.

Molly Boesel: Exactly, exactly.

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Maiclaire Bolton Smith: I want to talk a little bit about inherited properties, specifically in California. So, is there about to be, you know, a ton of properties passed down and that could really flood the market with new rentals? Or what is unique about California as specifically with these inherited properties?

Molly Boesel: Yeah, so you’re really wading into it there because so in California, you may not have your full value of your house being taxed if you've lived in it for a while, so maybe you could pass that down to your heirs. So we do have a nice piece on our Insights page detailing what's been happening in California. But you've got a broader idea here of, you know, you have a lot of older people who own homes right now. They may want to move, they may, you know, pass away, and their homes may be inherited. And they, you know, this has been termed the "Silver Tsunami," right? You have the older people leaving their homes and maybe flooding the market with a tsunami. But I think it's overstated because that's not all going to happen at one time. Right? So more homes will change hands over inheritance over time, but it will probably happen slowly. So maybe more of a drip than a flood, if we want to stick with the water analogies there.

Maiclaire Bolton Smith: Well, what would happen if the market conditions changed and what if we had a, you know, significant drop in interest rates and the economy softens essentially? Could we see then a flood of new rentals come onto the market at that point in time?

Molly Boesel: So again, we're going to stick with the water here, not a flash flood. How about that, nationally at least? So if rates fall, yeah, many landlords, they may want to sell their homes. Right? But many may not. Maybe they find that this landlording is for them. Maybe theyperhaps bought their home a long time ago, they're making good money on it, rents are still up, so they may find that they're able to make money on their rentals. But that said, you know, we have some metros where things could start turning over. Some landlords maybe cash-flownegative. But do keep in mind, we still have a shortage of for-sale housing in the country. So, you know, affordability is still a big issue. It's one of the things, you know, inventory and affordability are two things that are holding the market back. Right? So should we start to see some of these rentals come back, that could actually get things moving in the housing market and maybe more of an equilibrium.

Maiclaire Bolton Smith: Sure. Are there any specific metros to keep an eye on?

Molly Boesel: Yeah, I think you've got some of these places like Dallas, Austin. There's been a lot of new supply on the market in those areas. The supply has been in the multi-family space, but you know, I talk about, you know, kind of like two rental markets, but you've got just renters, right? They can choose between these two kind of rentals. So if you've got a lot more multi-family rentals coming online, especially as they did in Dallas and Austin, you can see rent soften in those areas as you know, they have more competitive, you know, they can maybe pick where they want to live and get a lower rent in some of those areas. So yeah, you could see some, you know, landlords not making as much money there. But I still think, you know, some we don't know when these people bought the homes that they're renting out, right? Their mortgages might be pretty low.

Maiclaire Bolton Smith: Sure. No, absolutely. I think back to, you know, pandemic times and a few years ago, Molly, five years ago, probably, where rental incomes were skyrocketing and that rental had just like, some places, some metros had increased in 20 to 50 percent. Like we had seen these really massive increases. And that's definitely cooled off in recent years. So, and you really alluded to the softening of rents and maybe some rental prices coming down a little bit. So I guess with these falling rents and you mentioned Texas, even though the falling rents are coming down, you know, taxes and insurance continue to climb in these places as well too. So with that in mind, is it now maybe setting up these accidental landlords in a place that they maybe won't be profitable by renting out their home even though their interest rates are really low?

Molly Boesel: Yeah, yeah. I think that's, you know, every landlord has to look at their own situation. If they can't meet costs on their with the rent, that includes a non-mortgage cost. You know, we talk a lot about that. If they can't meet those costs with the rent they're pulling in, then you know, they need to look at selling. And they need to also look at what else they could be doing with that money, right? I mean interest rates are high for mortgages, but that means they're also high for things like, you know, money markets. So someone could sell and put their money in a money market and do pretty well. So I don't think you know, a landlord would really need to look deeply at, you know, if rent's making the cost.

Maiclaire Bolton Smith: Weigh the pros and cons. It's such an economist view of looking at things, Molly, and I appreciate you said that because I think often we really focus on the, I'll say negativity of high interest rates when we're talking about property ownership. But there are positives to high interest rates as well.

Molly Boesel: They could literally sell their home, put the money in a very low-risk account and just make money on it. Yeah.

Maiclaire Bolton Smith: Yeah, yeah. So I mean for these accidental landlords, it really, you know, becomes again a game of math of what actually makes sense for them to do.

Molly Boesel: Exactly, exactly. Yeah. And thinking, keep in mind if they're moving to a different part of the country, they've also got to manage a property from far away. So that's yet another cost.  

Maiclaire Bolton Smith: Yeah, absolutely. I guess Molly, you know, with all of this in mind, it leads me to the question of what would it take to unlock the market and get us in a completely different situation? Is it just the interest rates going back to the historical lows that we had during the pandemic? Or I mean, we've talked about the increasing rising costs of home maintenance, of insurance, and property taxes. What's it going to take to unlock the market?

Molly Boesel: Yeah, so there's a couple of different ways I could see it going. So, you know, if interest rates would fall, they don't need to fall down to 3% because they're not going to fall down to 3%, right? The weighted average mortgage rate in this year is about 4.3%. Okay, so if you look at all the mortgages out there, average is 4.3%. You have a lot of people who bought in the past few years, so since mid-2023 till now, interest rates have been, you know, 5.5, 6, 7%. So you have that entire group of people. But I don't think they need to get down, you know, even to 4%, maybe in the 5% range just so that difference between the rate people hold and what they're going to take out isn't, you know, this huge gap. So that has been narrowing over time. So that's one way it could go if interest rates fall down to maybe in the mid-fives, I don'tknow, I don't want to put a number out there specifically, but they're not going to go down to 3%. And another thing is, some people become accidental landlords because they put their homes on the market and they have not been able to get the price they want to get for that. So maybe if they lower their price or maybe if you know, you get some more demand in those areas, that could also unlock some of the market.

Maiclaire Bolton Smith: I've definitely seen that in my neighborhood, just you know keeping an eye on homes for sale myself just in the neighborhood, that there's a number of homes that are for sale for a little bit of time and then all of a sudden they come up as a rental property. And I mean I know why. Like this is exactly why. Like I look at, we moved in this time period that you talked about in 2023, we moved and have a higher-end mortgage rate of this house especially compared to, you know, especially compared to what we had in our old home and I look back on it and I'm like yeah, we could have rented out our old home because we had such a low interest rate and we could have made a profit on it. But there's no way like for what we have to pay, it's way above what the rental market is. I don't think I'd get anybody to rent it for the price that I'd need to charge to break even. Whereas some of these other homes that probably were purchased in you know before three or four years ago and they do have a lower interest rate, they can afford to put them at more of a market rate rental because they can still potentially, hopefully make some money on it.

Molly Boesel: Exactly, exactly.

Allie Barefoot: It's that time again. Cotality just dropped new numbers about what's happening in the housing market. Here's what you need to know. Usually, when mortgage rates start to dip, people flock to the safety of a 30-year fixed. But right now, the script has been flipped. Adjustable-rate mortgages, or ARMs, are actually surging, even as overall rates are cooling off. It sounds counterintuitive, right? But the Cotality data shows we've hit a cash flow ceiling. With home prices still sitting at record highs, buyers are using ARMs as a tool rather than a last resort. The math is pretty eye-opening. In some markets, the gap between a fixed rate and a five-year ARM is the difference between a denied and an approved on a loan application. In short, affordability is so tight that the short-term flexibility of an ARM has become the primary bridge to homeownership in 2026. You can see the full breakdown of the ARM surge and how it might impact your next move on our insights page. The link is in the show notes. And that's a sip. See you next time.

Maiclaire Bolton Smith: Well, Molly, this is so interesting and you've been here enough times that you know I like to end this podcast with if you could look into your crystal ball, so please pull out your crystal ball. What do you think the future of the rental market looks like? Is it going to continue to grow and maybe more and more people becoming these accidental landlords or do you see the rental market going down again?

Molly Boesel: Yeah, I think I don't think we're headed towards a country of permanent landlording, accidental landlording. We're in a transition phase right now. We had years of low interest rates, home prices increasing, and that's reversed now. Right? So you know, we're just seeing people holding on to their homes a little while longer, maybe renting them out just as a transition, so not a permanent phase.

Maiclaire Bolton Smith: Well, Molly, I know you will be back again and I always love talking to you. But thank you so much for joining me today on Beyond the Buildings by Cotality.

Molly Boesel: Yes, and thank you for having me again, Maiclaire.

Maiclaire Bolton Smith: Well, I always love having you Molly. And thank you all for listening. I hope you've enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when new episodes are released. And thanks to the team for helping bring this podcast to life. Producer Jessie Devenyns, Editor and Sound Engineer Romie Aromin, our facts guru Allie Barefoot, and social media duo Sarah Buck and Makaila Brooks. Tune in next time for another conversation that illuminates the ideas that will define the future.  

Allie Barefoot: You still there? Well, thanks for sticking around. Are you curious to know a little bit more about who we spoke with today? Molly Boesel is a senior principal economist in the office of the chief economist at Cotality. She's responsible for analyzing and forecasting housing and mortgage market trends, including the single-family rental market. She has a depth of expertise in mortgage market analysis, model development, and risk analysis in the housing finance industry. Her original research appears on the Cotality Insights blog, which can be found at Cotality.com/Insights.

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