Why Rents Don't Drop When Home Prices Do

I'm sure most people know by now that interest rates on mortgages have been rising since the FED has been raising the fund rates so much this year to combat inflation (which in turn may be pushing us into a recession). The higher mortgage interest rates have reduced buyer demand because the more buyers have to pay in interest, the less home they can afford. This in turn has caused home prices to plateau and even decrease in some markets. But what does all of this mean for rents?

Historically, rent prices have not always matched home prices. As a matter of fact, the higher interest rates that are keeping buyers from pulling the trigger on a home purchase are actually increasing the demand for rentals. If they don't buy, they need to continue renting. More renters equals more demand, and more demand equals higher prices.

Similarly, during times of recession, unemployment rises causing some homeowners to default on their mortgages and lose their homes. Those people now have to rent further increasing the demand for rentals. Add all of this to an already short supply of housing, and you should be able to understand why your rent is not likely to decrease even if the prices of houses does. It may still be a better option to buy if it makes sense for you.