Low mortgage rates are keeping homeowners from selling. Some become ‘accidental landlords.’

Lindsay and Ryan Brim, a young couple living in Kensington with their 17-month-old son, have their eyes on the suburbs as they look to grow their family and buy a bigger house with a yard. That’s not unusual.

What is unusual is their plan to hold onto their home when they move.

They bought a newly constructed three-bedroom, 2½-bathroom home at the end of 2018. During the pandemic, they and millions of other homeowners refinanced while mortgage interest rates were at record lows. Now, as the average rate for a 30-year mortgage nears 7%, the Brims have a 3.175% rate they don’t want to give up when they eventually leave.

So Lindsay, who works in health care, and Ryan, who works in finance, plan to rent out their current home, located in a neighborhood they call “Port Fishington” because it’s in the area of Port Richmond, Fishtown, and Kensington.

The rent they could get for it would more than cover the costs of keeping the house. A three-bedroom, two-bathroom home a few streets over is asking for $2,800 a month. Another similarly configured home nearby is asking $3,495 a month.

“It’s a no-brainer if we have the ability to buy an additional house and then rent this house,” Lindsay, 31, said.

This spring, fewer homeowners than usual listed their properties for sale. Nationwide, fewer homes were for sale in May than in any other month since at least 2012, according to the online real estate brokerage Redfin.

About 9,000 homes were on the market in the Philadelphia metropolitan area in May, according to a report by the multiple listing service Bright MLS last month. That’s compared to more than 25,000 homes for sale in May 2019.

New home listings in May were down by more than 25% compared to May 2022. They were down the most — 37% — in Burlington County.

Many owners are locked into low mortgage interest rates from purchasing or refinancing over the last few years, and they don’t want to give up those rates.

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Some homeowners are staying put. But Taylor Marr, deputy chief economist at Redfin, has heard from agents across the country that some owners are deciding to rent out their homes and either buy or rent another when they move.

Ashley Lauren Farnschlader, a Realtor with Compass Real Estate based in Center City who helped the Brims think through renting versus selling their home, said that in her experience, “this is a new trend that’s emerging, and it’s because of the rapid change in rates.”

“I mean, there’s got to be expected consequences,” she said.

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Trey Dodge, a Philadelphia-area Redfin principal agent, said, “I’ve been talking to a lot of my clients who would want to sell their house” and have now decided to hold onto them. Some plan to rent them out.

“For the majority of people, they usually do need to sell in order to buy that new house,” he said. So this trend isn’t widespread, but “I think it’s going to be an increase from what it usually is.”

“As long as people don’t mind being landlords, it seems to make a lot of sense with current rates” and current rents, Dodge said.

Two of Dodge’s clients bought their first home in Philadelphia’s Wissahickon neighborhood in 2017. They had never thought about becoming landlords.

But now they have a child who will be in school in the next few years, so they started casually looking for a home in the suburbs. They thought they wouldn’t move for a couple more years, but a seller accepted their offer on a home in Narberth, Montgomery County, that had everything they wanted. They locked in a decent mortgage rate during a brief dip, and they closed on June 1.

They had refinanced their mortgage on the Wissahickon home to get a 2.5% interest rate, and after they ran some numbers, they decided to hold onto the property and rent it out. They plan to hire a property manager to interact with their eventual renter.

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They’re doing some work now on the Narberth house before they move in, but they hope to put their plan into motion as soon as possible. They want the arrangement to work out, but if it doesn’t, they can sell.

The potential rent will “easily” cover their mortgage, insurance, and taxes, as well as costs of operating a rental, Dodge said. “It made financial sense to keep [the home.]”

Lindsay Brim said that although buying an investment property in the current market didn’t make sense for her and her husband, turning their current home into an investment property does because of its low interest rate. They can afford to buy without selling, but Farnschlader, their Realtor, said, “it does change their purchase power” for their next home. The couple has looked at fixer-uppers and homes that need upgrades.

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“A homeowner has to weigh the pros and cons of selling versus becoming a quote, unquote accidental landlord,” Farnschlader said. “It’s important for people considering this to really give it the consideration it deserves.”

On paper, the math may work, she said, but “becoming a landlord is not for the faint of heart. It is a commitment.” Property owners need to get the proper permits and licenses, choose and communicate with their tenants, and keep up with maintenance.

Rents aren’t cheap, which is part of the appeal for homeowners looking to become landlords. But in most of the country, renting a home is more affordable than buying one.

High home prices and mortgage rates that have been up in recent years are pricing some buyers out of the market. Combined with a low supply of homes to choose from, “being a buyer now sucks,” Dodge, the local Redfin agent, said. “It’s just not fun.”

So some homeowners who need to move may choose to become renters.

“A lot of homeowners might hold onto their primary home and then rent after they move,” said Marr at Redfin, adding that these combination homeowner-renters may be renting from someone doing the same thing. “That’s something we’ll have to watch out for in the next year or so.”

“Lower mortgage rates could entice some homeowners to list their home,” Lisa Sturtevant, chief economist at Bright MLS, said in a statement last month, “but it likely won’t be enough to shift the balance in the market.”

Although rates have bounced around this year and could slide down a bit, economists don’t expect any significant drops anytime soon.

In early July, mortgage rates reached their highest level of the year. The average rate for a 30-year mortgage was 6.81%, a little higher than it was at the end of May, according to government-backed mortgage buyer Freddie Mac.

“There is a pool of ‘shadow’ buyers that could be waiting for mortgage rates to drop this summer,” Sturtevant said. “However, renewed buyer interest may not translate into more transactions if there is not more inventory.”