Pops and financial wipeouts are the historical norm when a billowing housing bubble meets dramatically higher interest rates. On the upside, the pendulum is finally moving in favour of renters and future buyers.

Buying housing has rarely been this unattractive relative to renting. The chart below shows that the average new US mortgage payment is now 52% higher than the average apartment rent, and this does not include all of the other costs of home ownership and maintenance. See, There’s never been a worse time to buy instead of rent:

The average monthly new mortgage payment is 52% higher than the average apartment rent, according to CBRE analysis. The last time the measure looked out of whack was before the 2008 housing crash. Even then, the premium peaked at 33% in the second quarter of 2006.

After years of ultra-lax credit conditions and favourable tax treatment, landlords and real estate investors are losing bargaining power and capital.

With homeownership out of reach for many tenants, landlords would normally be able to push rents higher. But the supply of homes to rent isn’t as tight, with a glut of newly built apartments depressing rent growth. Demand from tenants is also weaker than it was during the pandemic, as most people who were planning to move have already done so over the last two years.

Fannie Mae thinks vacancy rates in U.S. multifamily buildings will reach 6.25% in 2024, above the 15-year average of 5.8%.

This will hurt institutional investors, who have poured billions of dollars into U.S. rental property in recent years. Apartment stocks are also underperforming.

The market value of companies in the S&P 500 real estate sector has fallen 37% since the cycle peak in December 2021 and is now back to the same price level as June 2016 (chart below). A retest of the March 2020 pandemic crash low, 30% lower, remains in scope.