Will rents drop due to unemployment?

Question

I'm looking at a rental property in Kingwood Texas. Its above my target price range but the upside is too good to pass up.

With unemployment so high I am nervous about my rental pricing. Do you think rents will be lowered by other landlords to avoid vacancies?

Tim G. · Answer

I could see it going down in my market. There are many short term rentals that could switch over, increasing competition. There could be a combining of households to help recover financially from current events. Meaning higher vacancies and again, increased competition from landlords wanting to fill these vacancies could see a drop in rents.

The other interesting factor will be in the selection of tenants, renters placed into two categories... Does your line of work survive quarantine shut downs or not? The ones who don't being less desirable, higher risk tenants. The ones who do, likely having their pick of where they rent and better rates due to security.

I'd guess a 10-15% drop could happen easily.

Jay Hinrichs · Answer

Bryan I dont know about that..  this is not the last time..  were you had so many displaced owner occ folks.

My view or best guess is if you do have vacancies which could happen because these folks are not going to buy a home.

there could be a lot of move in specials and lowering of rent at least for a while.

agreed on the owner contracts as lenders have already left the non owner occ non QM space in droves..

just a guess is all.. will see how it all shakes out.

Steve Vaughan · Answer

Rents at the high end may very well drop.  Your $2400 4 bed could easily go empty as belt-tightening consumers/tenants move down to a perfectly fine $1400 3 bed.

I was so glad to not be in the luxury or short term/ vacation space during the last recession.  Bread and butter b's are where it was at.

Bjorn Ahlblad · Answer

@Pete Storseth I think it will be chaos for a while, with of course some areas better than others. That is hard to figure out where is bad and where is good at this point and depends on property class too. I'm figuring 15-20% rather than the regular 5% call it vacancy or reduced rent. So far I have lost no rent and have no vacancies across my portfolio but nobody knows what's up 12-18 months down the road.

Pete Storseth · Answer

@Bryan Blankenship

That's comforting however the house I'm considering is a 4bed 2story in a higher class neighborhood. 2400 in rent is gonna be tricky. I dont know. Maybe not. Since its higher class, maybe that demographic wont be as affected, maybe they will be more protective of their money, maybe they'd rather rent than buy...

Good news is I have two exits. I could market for rent AND seller financing

Stephen J Davis · Answer

Non-payment will go up but rents will not come down. They may even go up like in 2008 and 09.

Pete Storseth · Answer

@Jay Hinrichs this area is blowing up apparently.  I wont think with my wallet for them. I talked for a couple of hours with realtors and property managers in the area today. They dont know exactly why- maybe transient workers for ExxonMobil- but people are paying more to rent in this area than the mortgage would be.

Pete Storseth · Answer

I sent the contract today. I think the numbers are good for three exits. Should be fine.

Arun N · Answer

It's fairly evident from the forbearance programs that banks don't want en masse foreclosures like that of 2008 recession. With the rising unemployment, the qualified renter pool will only shrink and this should put a downward pressure on rents. What would happen to tenants who lost their jobs and need to move, and landlords are not willing to accept them. I'm concerned that there'll be way more government regulations that'll come forth as a result of this.

Guy Bouchard · Answer

Depends on market.  Las Vegas will absolutely look like a scene from Mad Max in another three months.  I am hoping to get $2000 for my SFR in upscale Summerlin that is now going for $4200.

Will rents drop due to unemployment?

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