Do rents go up or down in a recession?

Question

For those that have been through a recession. Did you see rents go up or down? I’m very curious to hear you reply and looking back what would you do to benefit from the next one?

Arlen Chou · Answer

@Chris Mason I think that was a compliment or you were calling me as old as dirt! Just kidding, I appreciate the shout out my friend ;-) I am not as well versed in many markets like @Jay Hinrichs but as an older guy who has seen a few ups and downs but only in the SF Bay Area I can throw in my two cents. In this market, rent rates and appreciation typically outpace short term downward pressure. Meaning, I have seen my portfolio rise in both the rent rates and property valuations at a high enough clip that only an extreme meltdown of over 50% drops would effectively push me into the red. But I am very conservative in my DTI on a whole portfolio basis.

I will also say that as a long term buy and hold investor the short term downward trends in rent rates are actually opportunities in disguise. Because of the rent control status of several of my properties, I am hoping that some of my tenants will actually leave in search of less expensive units. This would allow me to do upgrades/renovations and then re-introduce the unit to a different market segment with a higher entry point. Additionally, downward pressure on rents will also put pressure on landlords who are highly leveraged and create the opportunity to buy additional doors. I am already seeing longer days on market and price adjustments through many cities in my target markets.

Jay Hinrichs · Answer

agreed Russell  highly regional.

in the GFC though one of the main issue that cratered rents  was in areas were there was a HUGE building boom.. When the boom stopped many of the tenants were the labor force and they found themselves out of a job .  So at the time the big building booms were

FLA GA Central CA AZ NV  so those areas everything got affected..

in areas that don't depend on new construction as much as a driver for the local economy things kind of perked right along.. during the bad years 07 through 2010 I suspect rents in the better markets were probably pretty neutral I know Oregon was.  then at least in on the West coast ( and maybe Russ can chime in on his market) but rents went on a vertical tear upward.. basically almost doubling from 2010 until today were they have peaked and are softening.. which is about the same for home prices across the board with some higher end stuff seeing some significant reductions.. starter housing still strong in most markets though

the only place that was building like crazy that did not really busto I think was Hot spots of Texas.

and for sure rents in the " Cash flow markets " were stable we were getting 700 a month for a little mid west bungalow back then and you get about the same today.

Chris Mason · Answer

I strongly suggest disregarding the opinions of folks that were market participants during 0-1 recessions, myself included in that. People old enough to have been through a couple to a half dozen recessions tend not to use internet forums. There are exceptions: @Jay Hinrichs @Arlen Chou among others.

Russell Brazil · Answer

During the last recession, different markets reacted differently. You had some places where rents were even, others where they dropped slightly, others where they dropped dramatically, others that rose slightly and others that rose dramatically.

John Warren · Answer

@Chris Carrillo I tend to agree with @Chris Mason that most of us currently on BP are too young to provide great value in this regard. I have been asking local land lords at a land lord association I attend in Berwyn, IL this same question. These land lords do not use the internet and probably don't collect much data, but are a treasure trove of experience when it comes to wisdom. Most of them are not overly concerned about recessions or booms because they invest in working class communities where the rents are fairly stable and are insulated from the class A product that comes online. In this area, the rents are probably between 800-1300 per month depending on unit size, and you can easily see how a working person making $15-35 per hour can afford a rental.

I would think there is a lot of risk for those in the class A space and also those who are syndicating with the value add component being the main profit center (not cash flow). If the market tightens and vacancy rises this could be a real issue for some of these folks.

Amit M. · Answer

It really depends on the specific market location (in addition to type and class such as overbuilding, stable working class, class A, etc.)

However, in general, rents usually go down (some places a lot) or are flat in recessions. People double up, move back with family, don’t upgrade, etc. It’s unusual for a market to increase in rent during a recession; although it can happens, it’s not the norm.

Bill B. · Answer

Area and property type dependent.

I’ve heard that vegas multifamily rents dropped in Vegas  (I Didn’t/don’t own any so I didn’t notice/care) but SFR in Vegas rents rose quickly as people who lost their homes didn’t want to move their family in to an apartment.

$3,000/mo lakefront rental In MN was unaffected. (for better or worse)

Frank Wong · Answer

Really tough to say and hard to predict. Just depends on supply and demand and even that will vary depending on price points.

Ernesto Hernandez · Answer

You can pull historical rental data through Zillow Data. I wanna say it goes back 15-20 years down to the Zip Code or City, whichever you prefer.

Do rents go up or down in a recession?

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