Graham Stephan Says Rental Prices Have Begun to Crash. Here's How Home Buyers Can Take Advantage

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  • After months of increases, renters can finally look forward to lower prices.
  • Lower rents could also work to home buyers' benefit, as more people will be content to stay renters, possibly meaning less competition in the housing market.

It's actually good news for renters and buyers alike.

When the COVID-19 pandemic first reached U.S. soil in early 2020, it spurred an unprecedented employment crisis that forced many Americans out of work and left them behind on their rent. To prevent widespread evictions, lawmakers implemented a ban that barred landlords from removing tenants from their homes on the basis of not being able to pay.

That hurt landlords in a very big way. And so when rental demand started surging in 2021 as the U.S. economy staged its recovery, landlords took advantage by hiking up rents, to the point where many tenants started running into affordability issues.

But the tide is turning there. In a recent Tweet, real estate guru Graham Stephan said that rental prices have finally begun to crash. He also pointed out that 58% of rental markets are now down on a month-over-month basis.

Of course, falling rent prices are a great thing for those who rent. But actually, they can really benefit home buyers, too.

Home buyers stand to gain

Home buyer demand increased in 2021 for a couple of reasons. First, mortgage rates were really competitive at that point (unlike the rates we've been seeing recently, which are the highest they've been in decades). Secondly, landlords were raising rents at such a rapid clip that many people were persuaded to buy a home instead.

Now that rent prices are coming down, buyers stand to benefit. If the cost of renting a home declines, more people might choose to rent rather than buy -- especially since it's gotten so expensive to take out a mortgage. And fewer buyers means less demand, which could help bring home prices downward.

Should you rent or buy at this point?

That really depends on your personal financial situation, housing situation, and goals. If you've saved enough for a sizable down payment, have a steady job, and know where you want to live for, say, at least the next five years or so, then buying a home could be a smart bet. That way, you get to build equity in a home you own.

Will buying now mean getting stuck with a higher mortgage rate? Probably. But remember, there's always the option to refinance down the line, once rates drop. And while we don't know when borrowing rates will drop, that's apt to happen at some point. So if you can swing a home at today's mortgage rates, you'll be in an even better financial position if you're able to lower your housing payments in the future.

Meanwhile, if your career and living situation are a bit in flux and you're not confident in your ability to afford homeownership, then renting may be a better choice. And lower rent prices could work to your benefit.

If you're able to spend less to put a roof over your head, you can bank that savings and use it for a home down payment eventually. At the same time, you can work on firming up different life plans so that once you feel more financially ready to buy a home, you can also land on your target city or neighborhood with more confidence.

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