Does Rent also Go down when Real Estate Goes Down?

Question

This may seem like an obvious answer but due to supply and demand it may not be so white and black. Does rent drop when real estate prices drop?

For those who were landlords or RE investing back then, did rent drop during the 2008 -2012 recession?

Nathan Gesner · Answer

When the market drops, people can't buy houses. That creates more renters, which increases the demand for rentals, so rental values should increase. When the sales market is strong, more people purchase so there is a decreased demand for rentals.

In general, rent will not dramatically decrease like we experienced with property values in the 2008 crash. You may see small decreases of 5 - 10% but rent rates tend to stay stable and/or increase.

With that said, there are always exceptions and variables.

Account Closed · Answer

I was managing a 26 unit apartment building in Silicon Valley during the 2008 crash.  Rents came WAY down.  My tenants lost jobs and moved away to go live with their families, usually out of state.  We ended up with a 25% vacancy in about 2 months time.

Apartment buildings/complexes had big banners hanging on the buildings advertising "no credit checks" "first month free", and yes, the rents came down significantly.

The thing was, even though a lot of people lost their homes due to foreclosure, they too, didn't stay local.  So, the idea that people losing their homes will mean more tenants didn't play out that way for us.

The demand for housing and rent increases that happened over time, happened because jobs were available again and people from out of state moved here.

Also, people who did stay local, moved farther out from the job center, to where the rents and houses to buy were cheaper.

What I did to fix our crisis, was to market to university students.  The property was next to a university.  The owner didn't like renting to students, but it ended up being students that allowed us to weather the storm.  Students will pay more rent to be close to campus, regardless of the economy.  We were lucky that we had that option.

Joe Villeneuve · Answer

More often they can go up.  It all depends on why the property values went down.  The rents could go up because of supply and demand.  What if the number of renters increase due to the number of homeowners becoming renters ?

Account Closed · Answer

@Adah None

Yes it does. It’s a ripple effect as more folks buy houses. And as all ripples, it takes time. This classic trend curves look like:

GDP>> jobs increase >> popn increase >> increase rental demand>> vacancy decrease >>> rents increase >> purchase demand increase>>  prices increase

decreased GDP >> jobs decrease >> popn decrease >> decrease rental demand >> increase vacancies >> decrease rent >> purchase demand decrease >> new built glut >>> prices decrease

Joe Villeneuve · Answer

You can't use 2008 as a comparison here.  They are nothing alike.  2008 was an economic problem that lasted for a while.  This is a health problem, that is temporary.  Once the health "problem" is resolved, the economy will recover to where it was.  This temporary economic "symptom", is causing a pent up demand...which will be released upon elimination or control the the "problem".

Kenneth Garrett · Answer

@Adah None

The 2008 crash effected people differently depending on the particular market.  In the Midwest the rental market stayed stable and actually rents went up.  All those people who had banks foreclose became renters.  The market was very stable.

Steve Vaughan · Answer

I agree with Joe and Nathan above. The supply of renters rose and so did my rents.

I was in the Goldie Locks range of not too hot or cold.  A-class, lux, vacation, resort, STR s and flippers probably had different experiences.

I remember A class over-builds offering lots of incentives to fill vacancies. Compressed caps and hundreds of new syndicators as commercial credit catches a cold. .. could get interesting.

If LTR in b to healthy c class, I think you are armed well.  Flipping and STRs could take a beating.

Adah N. · Answer

Ok, I am getting rent is likely to stay stable? Even with Coronavirus that has put millions out of jobs?

I know this is not quite like 2008 to 2012, however, anyone remember what happened with their rental properties? Did you find your properties stayed vacant longer? Did you lower rent to attract renters?

Christine Mulkins · Answer

I starting investing in 2012 but I am not anticipating rents to drop with a recession. They may stay stable for a bit but not drop.

Does Rent also Go down when Real Estate Goes Down?

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