tandempower

Oversupply and competition with mortgage lending that will grow as interest rates rise. Mortgages are long-term bonds that guarantee investors/savers a certain interest return on their savings for the duration of the mortgage. That creates an incentive to sell mortgages and resell them as investment products (futures). Lenders will offer attractive mortgage packages, such as balloon loans, where people can pay lower payments initially and owe more later, which makes for higher resale value of the mortgage. Those low introductory payments put downward pricing pressure on rents, which also motivates landlords to sell off rental properties to mortgage-backed buyers. Interest rate increases stimulate mortgage lending by prompting investors to move money from stocks to bonds/savings.

Of course there are always ways that price-competition in housing gets undermined. Neighborhoods get differentiated into more and less desirable places to live, causing prices in more desirable areas to stay strong while prices drop where less people want to live. Many people also simply don't care about getting a better deal on housing and so they will pay high rent for a desirable place, even though they are wasting money to do so. It all depends on how much fiscal pressure people are under to cut their expenses and re-budget, which is also part of rising interest rates because borrowing money gets more expensive, causing people to cut costs to pay down loans instead of drowning in snowballing debt.