‘Extreme buyer hesitation’ pushes home sellers to rent instead of sell, as builders eye rentals as a hedge against a housing recession

Home builders and sellers are focusing on the rental market because of weak demand from home buyers. That is good news for people who rent.

Home sellers are having a hard time. Mortgage News Daily reported on Tuesday that the 30-year interest rate is at a record low.

There are more concessions given by sellers. A builder is giving away a finished basement.

Some sellers in the south and west are putting their homes on the rental market instead of waiting for the market to improve. John Burns Real Estate consulting has a research director named Rick Palacios Jr.

According to Palacios Jr., there is a surge in sellers shifting from sales to rentals in California due to the cooling housing market in the state.

He told MarketWatch that sellers may be inclined to switch because of the falling home prices.

The cooling market is preventing some homeowners from flipping their houses.

In places like Los Angeles, Orange County, San Diego, San Jose, and San Francisco, investor transactions make up 20% to 30% of all home sales.

A lot of builders believe that the for-rent market can be used as a hedge against a slowing housing market.

Home builders are following the same trends.

According to Ali Wolf, the for-rent market can offer a hedge to a slowing housing market.

She said that builders are working to build single- family homes for rent because they say they can offer the home, the location, the school district in some cases.

The pivot is happening where land prices are slightly cheaper and demand is still strong, like in Phoenix, Ariz., and parts of the south and the Midwest.

The pivot plans were laid out by the home builder on their third quarter earnings call.

Ara Hovnanian, chairman, president and CEO of Hovnanian Enterprises HOV, said on the call that they started construction of their first 200 home built to rent community last quarter.

The first 200 homes in the built-to-rent community were pre-sold last quarter.

They plan to build 350 more built-to-rent homes.

"Build-to-rent is a large potential revenue source that can help fill some of our pipeline gap from our traditional for-sale homes market during this time of extreme buyer hesitation."

We are excited about our opportunities.

They think that build-to-rent homes are easier to build. It is easy to switch, the company said.

The pivot to rentals may ease the pressure on renters who have had to contend with a tough market.

According to the September rent report from Apartment List, rents are decelerating due to a small increase in vacancies. As builders push deeper into the build-to-rent market, that will increase.

Discuss the housing market. You can write to Aarthi at aarthi@marketwatch.com.