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Belong Co-Founders

What are the experts saying about rising interest rates and the impact on the housing market for homeowners and real estate investors? Find out in our 2022 chat with Jon Martin and Celeste Löfqvist

Ask The Experts: Let’s Talk Rising Interest Rates & The Housing Market

You asked, we answered. Homeowners have told us the biggest concern on their minds at the moment is rising interest rates and its impact on the American housing market. So in June, Belong launched its first webinar conversation (not financial advice as the classic disclaimer would say!) with experts in real estate to address your burning questions. For anyone who missed it, you can catch up on the recording here or check out the article below for the highlights. 

Jon is a career Asset Manager, based in Los Angeles, who has managed well over a billion dollars in real estate assets on behalf of institutional clients. Partnering with Belong, he has shifted his focus to supporting smaller scale real estate investors in this wild financial climate. 

Celeste works closely with the product team and consultants such as Jon to adapt financial planning and asset management approaches for the everyday rental property investor. She partners 1:1 with Belong Homeowners to help navigate strategic decisions to optimize their investments. Previously, Celeste was a Partner at the Boston Consulting Group in the Bay Area.

Are the recent interest rate rises the end of “cheap debt”?

Interest rates have risen sharply in 2022 after more than a decade of historic lows coming out of the Great Recession. In 2020 and 2021, the 30-year mortgage rate had fallen below 3%. Yet by the end of May 2022, mortgage rates had doubled, reaching well over 5% for the 30-year fixed — coming as a big shock to many who don’t remember the sky-high rates of the 80s. 

“It’s worth grounding ourselves in the fact that historically speaking, rates are still low,” says Celeste. 

“100%,” agrees Jon. “...we’ve gotten very used to cheap debt. But in the 80s, rates briefly spiked over 15% — also when the Fed was battling record inflation. Even more recently than that, rates before the Great Recession were 5-6%, like what we’re seeing already this summer,” explains Jon. “Rates have just come down and down for 20 years now, which has fueled a rise in asset prices and tremendous equity gains for a generation of Americans who have had money in real estate along this journey”, he adds. 

Chart: Interest rates over the past few decades

So what next? With inflation still accelerating and not plateauing, there’s likely to be more rises on the horizon for July and beyond. 

“That being said, everyone is expecting more meaty rate hikes from the Fed at this point – this expectation has already been priced into the mortgage rates we’re seeing,” explains Celeste. “The reason we saw this sharper acceleration in June was because May numbers were worse than expected. Everything in economics is relative to expectations,” she says. 

“The Fed is obviously hell-bent on taking the steam out of pricing pressure. They’re looking to bring inflation back to the 2% steady state range. The next big indicator to watch is the June inflation data, which will be released mid-July. If high inflation persists, there will be more rises to come,” says Celeste. 

Will we see interest rates as dramatic as the 80’s and 90’s? 

Jon doesn’t seem to think so. “As Celeste mentioned, expectations for further hikes through the rest of 2022 are already cautiously priced in, so it’s unlikely…but rates won’t taper off until inflation does. So certainly don’t expect to see 3-4% mortgage rates again anytime soon,” he says. 

What does the current inflation rate mean for the housing market in 2022?

Jon says that on the simplest level, rising interest rates make home purchases more expensive, which reduces consumer buying power. This shrinks demand and pulls down prices. He provided this example:

At 6% interest = ~$3600 per month (Over 40% more expensive!)

“You can potentially refinance later on, but on a monthly basis, those sort of 30-50%+ shocks are just not feasible for pretty much anyone,” explains Jon. 

“It’s paralyzing to potential buyers, and when you layer this on top of the asset price increases we’ve seen over the past year, buying a house this summer could be 60%+ more per month than buying that same house last summer. And that pressures people to trade down what they’re buying, or in many cases, bow out of the housing market entirely,” says Jon. 

Data from Redfin (pictured below) shows the staggering leap on the cost of a mortgage payment on a medium home in 2022. 

The next graph (also from Redfin) shows that the asset prices had already started to diverge from buyer budgets before the rate hikes. This is based on what buyers are searching for on Redfin. “As people qualify for smaller mortgages, you can expect this pattern to continue,” says Celeste. 

Jon says “Right now economists are pretty mixed about how this will all net out for housing prices – that’s the big question. Few believe that a significant crash is on the horizon, but it’s hard to believe a meaningful cool-down isn’t finally seeping in.”

Celeste agrees, “Yes. No one's expecting this to be like 2008 – the market looks meaningfully different. The supply/demand balance looks different, homeowners have more equity built up in their homes, and lower debt service ratios than we’ve had in decades. So we don’t have anywhere near the structural fragility we had 15 years ago,” she says. 

“Exactly. But we’re still early here. Where we’re definitely seeing the impact already is on the volume of listings & sales. After years of record-low supply, the number of listings has been growing over the Spring and into Summer. And by this month, the total number of listings on market is up 15%+ over last year,” adds Jon. “So you see that we’re starting to accumulate some excess supply relative to tightening demand. You have some skittish homeowners that are trying to take advantage of still-high prices, but a gap is starting to emerge between seller expectations and what buyers are able to pay. So consequently, we’ve seen home sales fall for each of the last 6 months. Mortgage applications are down over 15% since last year, and of course, refinancing has basically gone to zero,” says Jon. 

“It makes sense that many folks are retreating to the sidelines to wait this out,” says Celeste. “Jerome Powell basically gave that advice explicitly in his latest press conference, to young folks in particular. There was a great New York Times article essentially saying just this. As interest rates spike, we can expect folks to simply stay put, or even be “underhoused” – to live in less house than they perhaps need or want. In this rate environment, it can make more sense to renovate or expand, rather than move – but whatever you do, don’t give up a low, fixed mortgage.”

What does this mean for the rental market specifically?

Since all of the Belong homeowners hold rental properties, Celeste and Jon discuss what this means for the rental market. 

Jon notes that what is tough news for many Americans grappling with inflation, is actually positive for rental property owners, with the hot rental market likely to intensify further. 

“At higher interest rates, fewer prospective homebuyers will qualify for mortgages (or at a lesser dollar amount) and will instead choose to keep renting. Rising rental demand will further push rents up – we’re actually already seeing that, with median nationwide rent passing $2,000 for the first time ever in May,” explains Jon. 

“From the Homeowners perspective, with lower and typically fixed rate mortgages already locked in, and rents likely to continue rising, yields will improve. It’s a fantastic time to be sitting on rental property,” he notes. 

Is now a good time to be acquiring a rental property?

One final Q&A from our webinar audience was for those who are thinking about acquiring rental property. Is now a good time or should prospective investors hold off?

Jon says now is a good time to keep a watchful eye for opportunities. “After so many years of intense competition, there’s honestly some welcome relief here – with cooling demand and fewer bidding wars, coupled with rising rents, we should see some cap rate expansion in the near future, meaning pricing coming down,” he says. 

“The question comes down to what your overall hurdle rate is given the current market conditions. So while you’ll have to factor in a higher cost of capital when analyzing your next opportunity, the recent upward pressures on rents and the likelihood of locating an attractive single family rental through less competition, and hopefully better pricing are creating a more attractive market for acquisitions.”

“Another point to consider when looking to acquire a rental, for those sitting on cash, is a higher down payment than say the standard 20% to reduce your exposure to higher interest rates. This will only help when running the numbers to see if your rental income will cover your operating expenses and mortgage payments,” he adds. 

“And finally, and this may just serve as a reminder to most of you, are the tax advantages of holding rental property – having the ability to depreciate the physical structure of the home and the cost of any property improvements; along with deducting most expenses related to operating a rental. So all in all, the picture can still look quite good for acquisitions,” says Jon. 

Got more questions for Belong? Contact us 24/7

Whether you prefer email, online chat or a good ol’ fashioned phone call, we’re here to answer any questions you may have. Contact us or learn more about becoming a Belong homeowner here.

What are the experts saying about rising interest rates and the impact on the housing market for homeowners and real estate investors? Find out in our 2022 chat

Are San Diego rental property prices up or down? Forget the news and see what happens when you take a real-world approach to pricing a San Diego rental home.

Forget the News: This is How You Should Price San Diego Rental Homes

San Diego ranks as one of the best places to raise a family, making it a popular rental market for single-family homes. So if you own a home in “America’s Finest City”, how should you expect to price your San Diego rental property? 

If you’ve been following the news, you’re not going to get many helpful clues on how to evaluate your rent. In June 2022 alone, The San Diego Union Tribune reported that rents for single-family rentals increased by 10% this year — while Fox 5 says that rents have cooled and are even falling this month.  

The truth is that all these reports are flawed, because they’re based on a very broad data-set of asking rents for available properties. They also incorporate high-end luxury properties that may not be comparable at all to your single-family home in San Diego. Bottom line: these stats don’t really reflect what is being paid in the market here and now. 

Even the property management approach of looking at homes in your neighborhood may not be the best way to decide what to charge for your home. There’s wild fluctuations in the market, inflation and interest rate changes. Other homes could have rented out a year ago when the market was a different place. 

So what’s the alternative? Belong has found a way to price San Diego rental homes based on real-world demand, not just what’s in the news. 

How to price your San Diego rental property with real-time demand

The best way to stay in step with the market is to price your San Diego home right from the start. When helping owners price homes in San Diego’s rental market, Belong uses technology to blend live market data with an all-important metric: real demand for each home. We determine the right price for your home that will maximize rental income and keep vacancies low, long-term. 

Once your home is on Belong, we get a true measure of the market by looking at impressions, clicks, tour sign-ups and how many people have started applications. With all that data at our fingertips — plus real estate benchmarks for the San Diego region — we can work with homeowners to react quickly and maximize rental value, while minimizing vacancy. 

And because we have ditched the property management model to create a residential network that is inclusive of residents, we attract the best of the best to place in your home. 

As a result, we trump the property management industry with 66% less vacancy. And our residents want to stay, with 71% renewing their 1-year lease (and unlike property management companies, this is done at no cost to homeowners). 

If you’re looking for a guide that covers the ins and outs of how to price a rental, we’ve covered 12 of those common pricing factors here. Or you can see if your property is eligible for Belong. 

With a unique approach and live insights from the San Diego rental market, Belong addresses the complexities and shifts in the rental market to determine exactly what high-quality, long-term residents are looking for and what they are ready to pay, right now. 

The result is fewer vacancies, great people caring for your home, profitable rental income, and no tricks or compromises that could devalue your home as a rental investment. 

Find out how Belong would value your SD rental at https://belonghome.com/homeowners/san-diego 

Many Americans are resigned to a lifetime of renting. Learn how Belong is using innovation to change this paradigm, and transform renters into owners.

How Belong is Breaking the Perpetual Rental Cycle and Turning Residents into Homeowners

Right now, in America, yet another generation is finding itself resigned to a lifetime of renting their homes. This blog discusses how Belong is using innovation to change this paradigm, and transform renters into owners.

On one hand, when you look at Belong, you’ll find two distinct sets of people: landlords – or as we call them homeowners; and tenants (ugh) – or as we call them, residents.  

But as different as these groups seem on the surface, the interesting thing about the people on our platform is that, in actuality, there isn’t that much of a difference between them. They both love the house that, on an emotional level, they share, and they both care about the neighborhood and community that surrounds the house.

At Belong we see the dichotomy between homeowners and residents as artificial and outdated; in today’s world, people should be able to move fluidly from renting to owning. 

That’s why we’re working so hard to accelerate the ramp to ownership – to shorten the rental period and extend the ownership one.

That data shows that the American Dream of homeownership isn’t going anywhere. In fact, 89% of Millennials – and this was before the pandemic – want to own a home.

But it’s harder than ever to achieve that dream. Housing prices have increased over the last decade-plus, while supply has slowed to a trickle. What’s more, cash-rich, opportunistic investors have moved into the market, sucking up supply. That’s why economists predict that even with rising interest rates, housing prices will not fall significantly.

As our founders observed in a recent blog post announcing our Series C raise, “The last ten years saw a significant concentration in ownership of the housing supply. As a result, individual homeowners and renters now compete with prominent hedge funds to access homes to live in and build long-term wealth.”

So what’s the solution? To create new opportunities for renters to become owners – and for owners to enable that transfer.

Belong is proud to be helping to break the perpetual rental cycle by innovating the Karma Wallet. Here’s how it works. Every time a resident on our Belong platform pays their rent on time, a portion of that money is stashed away in the wallet, for residents to apply to a future home purchase. 

When the resident decides to buy the property, and has reached an agreement with the homeowner, Belong provides residents with a Home Purchase Specialist who will guide them through the process. 

Of course, it might be a while before residents reach the point of being ready to buy a home, which is why we allow them to apply their Karma to the rental process as well: once you’ve built up enough Karma they’re given priority access to rental properties on the platform. 

Think of it as a twist on the classic “Rent-to-Buy” concept: residents are effectively building up equity in homes they want to call their own, while homeowners have built-in, on-demand buyers they know and trust.

We believe this is what residents want, to have the flexibility to buy with a helpful Belong boost.  And we believe that our homeowners want to see the houses they hold so dear end up with someone who will have the same kind of relationship. 

But we also know that all homeowners are different. Some may want to work through Belong and sell their home, others may choose to sell the home directly, or with a broker of their choosing.

That’s cool with us. Unlike property managers who have strict lock-in contracts, we give our homeowners the ability to sell their homes in any way they choose.

It is ideas like these that will help shift homeownership back into the hands of people, instead of hedge funds — and that will help working Americans “break the perpetual renting cycle,” to borrow a phrase — plus some inspiration — from our founders.

We know that just about all of the homeowners on our platform aren’t professional investors.  Many have moved out of their home but aren’t ready to sell it. Others are what we call “accidental homeowners,” people who’ve unexpectedly inherited a property and aren’t exactly sure what they want to do with it

These homeowners can provide the on-ramp to a generation of renters who want to become owners themselves. Being able to participate in the evolution is something that makes us happy every day.

Want to learn more about what Belong is doing for homeowners? Click here. Or if you’re a potential resident and want to learn how we’re helping people like you, click here. 

How Belong is Breaking the Perpetual Rental Cycle

Forget the comps and stats, pricing your LA rental home isn't that simple. See what happens when you take a real-world approach to pricing Los Angeles rentals.

How to Price Your LA Rental Property To Attract Long-Term Residents

The City of Angels, La-La-Land, The Big Orange. Call it what you like, there’s one thing that always springs to mind when talking about LA and that is expensive. Los Angeles rents are often reported to be among the highest in the nation. But with rent control laws, coupled with wildly contradictory forecasts on the LA housing market, how should homeowners go about pricing their homes on the rental market? By ditching the property management model for a future-ready alternative. 

Rents have skyrocketed across LA neighborhoods, but that doesn’t mean it’s all Flowers and Sunshine for homeowners in Los Angeles. For the past two years, homeowners have had to freeze rent and deal with an eviction moratorium. Some also dropped rents in 2020 when vacancies spiked. 

According to RentCafe, the median rent in LA neighborhoods is anywhere between ~$1,500 per/month in Vermont Vista up to more than $4,500 per/month in Santa Monica neighborhoods like North of Montana. When looking at the stats available online, it’s worth remembering that these are asking-rents for available properties only and aren't reflective of what is actually being paid in the market. 

These medians often incorporate high-end luxury properties that aren't indicative of all rents, especially with LA’s rent control laws in effect. 

How to price your LA rental property with real-time demand

The best way to stay in step with the market and rising costs is to price your Los Angeles home correctly from the start. But looking at stats and comps alone isn’t enough when things get this complicated. Yet that’s exactly what real estate agents and property managers do, because it’s the way it’s always been done. 

“The way it’s always been done” is exactly why Belong has ditched the property management model to offer a completely unique service that takes a humanized approach to the rental market —  including pricing.

When helping owners price Los Angeles rental properties, Belong uses technology to blend live market data with an all-important metric: real demand for each home. We determine the right price for your home that will maximize rental income and keep vacancies low, long-term. And because we extend our services to renters as part of our community, we attract the best of the best to place in your rental property. 

Once your home is on Belong, we get a true measure of the market by looking at impressions, clicks, tour sign-ups and how many people have started applications. With all that data at our fingertips — plus local-market benchmarks — we can work with homeowners to react quickly and maximize rental value, while minimizing vacancy. 

How to price rent in compliance with Los Angeles rent control laws

Speaking of lease renewals, when pricing a home in LA for rent, be aware that it may be subject to the LA’s Rent Stabilization Ordinance (RSO). The RSO governs allowable rent increases and evictions. 

Single-family homes are almost never subject to rent control, but if you have a duplex, townhouse, subdivision or ADU, the RSO may apply. 

Rules vary across California, but generally you can only increase the rent once every 12-months by 3-8% in accordance with the annual rent increase percentage, based on CPI. If you need to raise the rent to cover costs for improvements, major renovations, or the inflation rate is not enough to cover your operating expenses, you can apply to the LAHD for approval of a higher rate. 

Before making any decisions on rent hikes, check with your local city for rent-controlled laws specific to your home’s location:

You can learn more about cost recovery and rent adjustments at the Los Angeles Housing Department website. 

Goldilocks rental pricing that is just right, for right now.

With a unique approach and live insights from the Los Angeles rental market, Belong addresses the complexities and shifts in the rental market to determine exactly what high-quality, long-term residents are looking for and what they are ready to pay, right now. 

From Adams-Normandie to Baldwin Hills, Venice to Woodland Hills and everything in between, find out how Belong would value your LA rental at https://belonghome.com/homeowners/los-angeles

Forget the comps and stats, pricing your LA rental home isn't that simple. See what happens when you take a real-world approach to pricing Los Angeles rentals

Belong

Tyler Infelise

Sparsh Mehta

Lauren Slagter

Jill Jaracz

Ale, Owen & Tyler Founders

Tyler Infelise

Sparsh Mehta

Lauren Slagter

Jill Jaracz

Ale, Owen & Tyler Founders