Rents and house prices are rising at a slower pace, new data show

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The sizzling US real estate market that has enriched property owners in recent years as it crushes renters and first-time buyers is showing flicker of slowdown.

Although rents and house prices are still rising, the pace is slower as inflation and rising mortgage rates weaken demand. In June, the average home price rose 17.3%, a significant drop from the 19.3% increase recorded in May, according to data analyst Black Knight. Those full two percentage points are “the biggest slowdown in a month since at least the 1970s,” said Black Knight President Ben Graboske.

Rents followed a similar trajectory in the second quarter, with the average monthly payment for an apartment rising 9.2% in the three months ended June 30, year over year, according to real estate data firm CoStar. This compares with consecutive peaks of over 11% in the previous two quarters.

Change comes when the economy in general has shrunk and ignited fears of a recession. Housing inventory has risen in parts of the country as would-be home buyers, priced by rising inflation, retreated, analysts and real estate professionals say.

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The recent moderation in rental growth “is directly related to the lackluster demand we’ve seen in the past 90 days,” said Jay Lybik, CoStar’s national director of multi-family analytics.

Mortgage rates have risen steadily since the Federal Reserve began raising the benchmark interest rate in March to put a stop to uncontrolled inflation. Consumers, in turn, are looking at higher monthly payments when they are already paying more for basic necessities like food and gas. It is also more difficult to save for a down payment.

As a result, fewer people are looking for mortgages, with mortgage demand hitting a 22-year low in June as rising interest rates and recession fears keep would-be buyers at bay.

With landlords continuing to raise rent and home loans becoming more expensive, many renters find themselves playing an inflationary game to maintain their standard of living.

Consumers continued to spend in June even though they remained wary of the future

Josh Martin, a 25-year-old tech operator living in upstate Chicago, wants to buy a condo in the $ 250,000 price range because “the rent is crazy right now and I’m afraid it will increase.”

He currently pays around $ 1,000 for a studio, but says the price of a smaller unit in his apartment complex has jumped to $ 1,300 on the website. The average rent for a bedroom in Lakeview, Chicago, where she lives, is $ 1,700, a 22% increase from last year, according to the Zumber rental platform.

He is faced with a difficult situation: is it better to buy a house in an overheated market when a recession could be around the corner, or to stand still and run the risk of a steep rent increase? It’s hard to say these days.

Martin was still rented as of Monday.

Others are down due to rising costs. Penn Johnson, 62, says she sold his home in affluent Fairfield County, Connecticut last year and started renting. He owned a house there for 32 years before downsizing.

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“I thought about renting for a year and deciding what to do next,” Johnson said, not knowing the volatile housing market would push mortgage rates up nearly 50 percent.

Now he doesn’t know what to do: even though the rent is comfortable enough, he didn’t want to do it forever. But at an age close to retirement, he didn’t even want to pay thousands in monthly mortgages. Plus, the rent isn’t cheap at all – he pays $ 4,200 a month for a place that probably went for $ 3,000.

“And I’m like, damn, I’m stuck,” he said. “I’m a pretty successful guy financially. I can afford things, but it’s hard to make sense of them. “

He is among the many Americans who show trepidation for what will happen next. The Consumer Sentiment Index, a widely followed measure of consumer attitudes maintained by the University of Michigan, is near its 50-year low.

For sellers, it marks the end of the “name your price” era. Johnson, who works in the residential lending business, said more sellers are accepting offers below the asking price.

“[Sellers] they seemed to have a lot of market power and I think that market power disappeared as the market became more balanced, “he said.

As consumer spending accounts for two-thirds of the US economy, policymakers have been watching it closely for signs of contraction. So far, it hasn’t slowed much: Spending rose a healthy 1.1% in June, the Bureau of Economic Analysis reported Friday, up from 0.2% in May.

But that increase came during a month when gas prices were near all-time highs: the national average surpassed $ 5 a gallon for the first time. And there are signs that some consumers are cycling towards cheaper options. Discounted retailers such as Dollar Tree report that they are gaining market share over their more expensive competitors. Others, like Walmart and Target, are discounting excess inventory as they find consumers devote more of their family budgets to food, fuel, and services, some of which cut their purchases accordingly.

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