If market prices crash do rent prices also crash?

Question

Suppose something like the 2007 housing bubble burst again, if I am invested in a cash flow property rather than a speculative appreciation property do I have anything to worry about? I mean, would I have to lower rent as the prices fall?

Kristina Heimstaedt · Answer

Bill McBride's Blog is the best. He oftentimes has price to rent ratio graphs. He's also a great resource for general market information and had the data to predict the housing bubble accurately. Numbers don't lie and Bill has lots of numbers.

Lumi Ispas · Answer

@Jun Zao , as everyone mentioned earlier, usually the demand and income level in the area will determine if the rents go up or down. Chicago is known for its strong job market. In the past, rents went up almost all over the city. I would exercise caution in buying in areas that are occupied mostly by tenants, as those usually are the areas that could lose a higher % of tenants and have the possibility of lowering rents.

The last downturn has displaced a lot of people through a high amount of landlords going through foreclosure. We don't expect such a market to come around again, only a slow down, which is normal in the real estate market.

Russell Brazil · Answer

in DC rents also went up during the housing collapse.  You had an unusually high number of property owners who in a very short time became renters.  So simple supply and demand economics took place, with higher demand for rentals, rents went up.

Sam Shueh · Answer

Tied to unemployment. If it is blue collar profession losing jobs taking a lower rent is better than not getting a rent. Tenants do fight back and asking landlord to charge less or go elsewhere.

Joseph M. · Answer

@Jun Zao , not sure for specific neighborhoods or zip codes.

If you take a look at this site

http://www.deptofnumbers.com/rent/illinois/chicago...

You'll see median and average rents in Chicago (in general) did go down a bit during the crash..but doesn't look to significant.

You should account for the possibility that there might be a rent decrease. Vacancy rates are also important too.

If it ends up taking you a long time to rent a unit then that will cut into your cash flow as well.

Elbert D. · Answer

@Jun Zao well for rentals, you should look at cash flow it should be your number 1 stat to look at. Appreciation is the cherry on too of the cake. What cash on cash return are you getting with this buy and hold? Are you planning on acquiring more properties in Chicago?

Jun Zao · Answer

Where do I go to find historical rent data for a specific neighborhood of Chicago?

If market prices crash do rent prices also crash?

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