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When the Federal Reserve began jacking up interest rates in 2022, home sales cratered almost overnight; inventory dried up; the housing market “froze.” People who have mortgages with interest rates below 4 percent—which is more than 60 percent of homeowners—aren’t going anywhere. They’re not selling their houses. They’re staying put.
The current availability of homes for sale is about 36 percent lower than before the pandemic; this past October, home sales dropped to their lowest level in more than 13 years, and in November, the share of homebuyers looking to relocate to a different metro area was at its lowest level in 18 months. People who own homes have become so reluctant to move that they’re likely to pass up job offers in other cities, one study found.
If swapping a low mortgage for a much higher one is plainly undesirable, the way out of the problem—and into a new space—seems plainly obvious: renting. Now is a terrible time to buy a home, but renting would allow more Americans to relocate without becoming “house poor” at a 7 percent interest rate. A rental home could help a growing family break free of a too-small starter house. A national renting trend, in which owners put up their homes for rent and become renters themselves, could unfreeze the whole market.
“Why not just rent?” is a question I’ve asked myself (and my husband, and our real-estate agent) many times over the past couple of years, as we’ve tried and failed to sell our house and buy a new one. After a long day of touring gross, overpriced homes that would require thousands of dollars of renovation, all for double the interest rate we have now, I’d mutter, Why don’t we just rent a house instead of buying one of these dumps? Every time, they reacted like I’d suggested we live on an ice floe in the middle of the North Sea. Rent?
It turns out that deep cultural, regulatory, and financial incentives prod Americans toward the “homeownership ladder” and, once they’re on it, discourage them from hopping off. Although renting is often not any financially or psychologically worse than owning—in fact, it might be quite the opposite—renting after owning is just not something most Americans want to do.
It’s not that nobody wants to rent, of course. Demand for rental homes is healthy: In fact, rentals are becoming the new starter homes, as many would-be first-time buyers, who can’t afford to buy at today’s interest rates, rent houses instead. “Instead of moving from apartment to ownership, you move from apartment to renting a house and later on to ownership,” says Nicole Bachaud, a senior economist at Zillow.
But about 70 percent of people who sold a house recently also bought a home, according to a report by Zillow. (That doesn’t mean the other 30 percent all rented—they might have moved in with family, moved into a retirement home, or moved into another home they also own.) “Very, very few people make that transition back into renting,” Lu Liu, a finance professor at the University of Pennsylvania, told me.
Say someone does currently own a home at a low mortgage rate and wants to move. The first question would be what to do with that home. Financially, the ideal is to hold on to that house—and rate—for as long as possible. “Giving up a 3 percent mortgage in a 6.5 percent interest-rate environment is the equivalent of giving up 15 or 20 percent of home value,” Chris Mayer, a real-estate professor at Columbia University, told me. Nevertheless, renting your home out can be expensive and annoying. “You get a call at 7 a.m.—the hot-water heater is broken,” Mayer said. “Being a landlord is not that much fun or that easy.”
What’s more, the federal government, through regulations and incentives, practically begs Americans to buy homes, not rent them: Homeowners benefit from a slew of tax deductions that aren’t available to renters. Rents can increase, but fixed-rate mortgages never do. “During the pandemic, house prices went up by a lot, and that was very painful for renters and people who are trying to get onto the housing ladder,” Liu said. “But it wasn’t necessarily a problem for people who were already owning a house.” That means homeowners are shielded from inflation, their house payments a relic of the year in which they bought their home. Even if a current homeowner did opt to rent instead, they might find that typical rents are now even higher than their mortgage payment.
It’s not just fixed rates that make homeownership feel more stable than renting. In most cities and circumstances, a renter can get kicked out by a landlord who wants to move back into their house, or who simply wants to charge more rent. If you have kids, that raises the stakes of renting: What if they’re in a school they love, and the landlord decides you need to vacate?
Finally, homeownership has a firm hold on the American psyche—a preference that isn’t entirely rational. Though owning a home is often a good way to build wealth in the long run, in the short term, owners are on the hook for any repairs the home needs, which can be extremely costly.
Homeowners aren’t necessarily any happier than renters—one study of women in Ohio even found that homeowners are more miserable because they spend less time with their friends. But along with parenthood and marathons, it seems like one of those things that doesn’t make us happy but that we do anyway. “Homeownership in America is an ideal,” Daryl Fairweather, the chief economist of Redfin, told me. “And the ideal is that you don’t have a landlord, and you are the king of your own castle.” People want to paint the walls whatever color they wish—even if we all end up painting them Mindful Gray. We just want the option.
Perhaps more Americans would rent if renting weren’t so precarious. In countries where protections for renters are stronger, more middle-class people see renting as a long-term option for their family rather than as a temporary solution in their 20s. Take Germany, where only about 45 percent of households own, compared with two-thirds in the United States. There, landlords can’t terminate a rental contract for just any reason, and it’s extremely difficult for landlords to raise the rent. As a landlord you might “like to have a long-term renter leave, but you can’t,” Leo Kaas, an economist at Goethe University Frankfurt, told me. Rental contracts are open-ended, Kaas said, and that “makes it much more attractive for individuals in the first place to rent.” Some Germans move into low-income housing and stay there for years, even as their incomes rise and they technically no longer qualify.
For now, my husband and I have reached a détente in which I stare at Zillow rentals and he stares at Redfin’s for-sale listings. Neither of us much likes what’s on offer. So far, we’ve been doing what other homeowners have been doing: not moving.