Rising interest rates could create more competition in the local rental market – 89.3 WFPL News Louisville

Renting in Louisville could become more competitive and expensive due to federal monetary policy, according to a local economics expert.

The Federal Reserve System, the country’s central bank, tries to fight inflation by raising interest rates. Last week the agency increased the federal funds ratewhich ripples through other rates, by 0.75 percentage points in its fastest rate hike in decades.

This year, Americans have felt the sting of rising inflation, even in a boiling job market. Although unemployment rates are at their lowest levels Since the onset of the COVID-19 pandemic, increased spending has helped consumer price growth outpace wage gains.

The central bank’s moves to rein in spending have some economists worried about a possible recession, and rising interest rates could also impact homeownership. As borrowing becomes more expensive, the most popular mortgage, a 30-year fixed rate loan, hit its highest interest rate since 2008. Soaring interest rates combined with rising house prices could deter potential buyers.

Weihua Zhao, an associate professor of economics at the University of Louisville, said expensive mortgages could push more residents into the rental market, which could lead to an imbalance between supply and demand.

“If demand increases, while in the short term the supply of the rental market does not change, we will expect the increase in rental [prices]… The rental market could, you know, slowly become unaffordable for low-income people,” Zhao said.

A recent report on housing needs by the advocacy group Ready for growth found that the Louisville area went from a slight surplus of housing units to a small shortage from 2012 to 2019. The area had about 3,000 units behind in production, putting it in the middle of the pack among more of 300 US cities examined in the report.

However, a 2019 housing assessment commissioned by Louisville Metro found a greater disparity in the availability of affordable housing. The analysis revealed that more than 30,000 homes needed to be created for households earning less than or 30% of the region’s median income, approximately $23,000 per year for a household of four.

Zhao said if potential tenants struggle to afford homes, like in a recession, the rental market could be disproportionately affected. This could spur interest in lower-end apartments overall as house hunters seek to avoid the expense of high-end rentals.

“We all need housing. So if buying a home is unaffordable, demand in the rental market will only increase,” she said.

Rents are already high nationally. A June report by real estate brokerage Redfin found that the median rent in the United States was up 15% from a year ago.

According to data collected by the Pew Research Center, rents have also outpaced inflation over the past five years. The non-partisan think tank also found that the rate of available rental homes fell by almost half between 2010 and 2021.

In Louisville, homeownership rates vary by demographics. According to the latest annual report from the Metropolitan Housing Coalition, a local advocacy and research group, homeownership in the Louisville area is above the national rate. But black and Hispanic/Latino residents are less likely to own homes in Louisville than their racial and ethnic counterparts elsewhere. They are also more likely to be denied mortgages than white Louisville residents.

Tony Curtis, the group’s chief executive, said higher mortgage rates are creating affordability issues in the housing market.

“Once mortgage rates go up, not only do we already see a huge disparity between people who are able to create and successfully obtain a mortgage for a home, but it also has the opposite effect, because everyone depends so more rental properties.”

“Landlords who own these developments are going to see this as an opportunity to raise rents,” he said.

Curtis said potential solutions to deal with the high prices are rent control measures and protections against predatory rents, such as a bill proposed by Democratic State Representative Attica Scott of Louisville to provide private rent control in West Louisville neighborhoods. State law currently prohibits local municipalities to impose such rent control.

Leslie M. Gill