The Connection Between the Rental Market and the Resale Market

Most sellers are not aware that the rental market and the resale market are intertwined. When demand for rentals are high, rental rates rise. When it is more expensive to lease than to buy, first time homeowners buy. That spawns a chain of buying – allowing the seller of that first time home buyer to buy their next home, and that seller to buy, and so on. When rentals start to stagnate, prices drop for rentals making it more attractive to lease. When it is cheaper to lease than buy, would-be home buyers exit from the resale market.

Tina Tamboer of the Cromford Report shares this information on the rental market:
“However, be aware that the estimated payment for a 1,500-2,000 square foot home is now $77 higher than the median rent for a similar rental leased through the Arizona Regional MLS. The rental market responds to a shift in demand faster than the resale market does because landlords are faster to respond with a lease price reduction if their investment is vacant for too long…MLS rental supply (is) up 60% in 5 months”

Given that the rental market moves much more quickly than the resale market, the rental market is an early forecaster, not a present one. Despite the weakening demand and slightly improved supply the Greater Phoenix real estate market has not peaked on price. Why? We are still 76% below normal on the supply of homes for sale and demand remains about 13% above normal. Tina further explains:
“Housing market indicators move slowly, unlike other types of investments such as stocks or currencies. When events such as interest rate hikes or stock market fluctuations occur, there isn’t an immediate measurable response in housing prices. Consumers may “panic sell” stocks, crypto, or even their belongings; however, selling the roof over their head or a performing rental is typically the last resort. For this reason, jolts to the economy (like a sudden pandemic or economic sanctions) need to be in effect for many months without improvement for housing to see prices finally respond.”

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