Detroit Rents are More Expensive than a Mortgage: Advice for Landlords
Landlords, take notice: The cost of a mortgage in Detroit is now cheaper than rent.
The Motor City is one of only a handful of metros in the country that’s seen an increase in both rents and house prices, even as the rental bubble seems to be slowing in others.
At the same time, attractive interest rates are making homeownership more affordable.
The result?
More people may be converting from tenants to first-time homeowners.
Let’s take a look at the data to see what this means for landlords in Detroit in 2025 and beyond.
Market Overview: Rising Rents and Home Prices
The Detroit housing market is currently witnessing a significant rise in both rental and home prices.
According to Zillow, the typical monthly mortgage payment in Detroit is now 16.5% lower than the average rent, marking a shift that could lure renters into homeownership.
Here’s a snapshot of the current figures:
- Average Rent: $1,499
- Typical Mortgage Payment: $1,286
This makes Detroit one of just 22 metropolitan areas in Zillow’s latest report where a mortgage payment is, on average, less expensive than monthly rent.
But rising prices aren’t the only factor contributing to this shift in the market.
Interest Rate Dynamics: What Landlords Need to Know
In September, the Fed cut interest rates by half a percent, and earlier this month they announced that further cuts may be likely before the end of 2024.
This is likely to have an impact on mortgage rates, as we’ve seen the correlation between short-term rates and mortgage rates shift post-pandemic.
Historically, there was little direct correlation between the Federal Reserve’s benchmark short-term interest rate and longer-term mortgage rates.
However, since the COVID-19 pandemic and the Fed’s actions to curb inflation by hiking interest rates, this dynamic has changed.
Now, changes in the Fed’s short-term rates are more likely to influence mortgage rates, with potential rate cuts expected to lower mortgage rates further
So, in light of the rate cut, mortgage industry expert Guy Cecala told Crain’s Detroit that, “There’s a good chance mortgage rates will drop to 6% or below, enhancing affordability for homebuyers.”
Implications for the Rental Market
- Increased Homebuyer Activity: Lower mortgage rates may entice renters to purchase homes, potentially reducing rental demand.
- Refinancing Surge: The Mortgage Bankers Association projects a 20% increase in mortgage activity, with refinancing volume expected to nearly double by 2025.
Competitive Housing Market: Challenges for Landlords
At the same time, the competition for quality housing in Detroit is intense.
New homeowners, developers, and speculators are actively seeking properties, presenting challenges for landlords aiming to expand their portfolios.
This will mean more competition for rental investment properties, but it also represents a lot of competition for owner-buyers, too.
Anyone looking to get on the property ladder in Detroit for the first time now will need to be prepared to compete with investors for move-in-ready units. Or, be prepared to do serious renovations to bring a property up to standard.
And so far, the data seems to show that they’re reluctant to do so. Despite there being a lot of available inventory and attractive prices, owner-buyers seem not to be buying.
Strategic Approaches for Landlords
Here’s our advice to landlords who want to stay ahead of this evolving market:
1. Invest in Strategic Renovations
Renovations can enhance property appeal and command higher rents. Focus on areas that offer the greatest return on investment:
- Kitchens and Bathrooms: Upgrading these spaces can significantly increase tenant satisfaction.
- Energy Efficiency: Implementing energy-saving solutions can attract environmentally-conscious tenants.
2. Leverage Advanced Marketing Techniques
Maximize visibility through innovative marketing strategies:
- Virtual Tours: Offer potential tenants a comprehensive view of properties, enhancing engagement.
- Targeted Advertising: Utilize data-driven campaigns to reach prospective tenants effectively.
3. Strengthen Tenant Retention
Maintaining existing tenants can be more cost-effective than acquiring new ones. Implement robust management practices, including:
- Responsive Communication: Ensure open and effective communication channels.
- Lease Renewal Incentives: Offer benefits for lease renewals to minimize turnover.
Conclusion: Embracing Change for Strategic Growth
Detroit’s rental market presents both challenges and opportunities for seasoned landlords.
We personally don’t feel that more attractive mortgage rates will completely disrupt the rental market here, as many tenants don’t have the upfront capital for a downpayment. And many more will be daunted by the complexities of the housing market here.
But who knows?
We’ll keep you updated as the situation evolves, so watch this space.
—
Our aim is to empower landlords with the tools needed to thrive in this dynamic housing environment.
Ready to invest? Contact us to get a list of our turnkey rental properties available in Detroit