Doom and gloom. That is what the concerned landlord finds when they search social media, watch the news, or listen to any real estate podcast. According to what you find online, the world is ending, the real estate market is due for a record crash, everyone hates everyone, and the apocalypse was supposed to start yesterday. Now, are any of those claims true?
The world is not ending. Yes, there is conflict, inflation is high, and everyone is feeling the pinch at the gas pump, but mankind has weathered worse storms. Despite the online vitriol, I don’t think everyone hates everyone. I am speaking for myself, but I believe it is universally true, when I say that I get along rather well with most of the people I meet throughout my day-to-day life.
There is only one more question left to answer. Is the rental market due for a crash? And of more personal expediency, what does it mean for landlords? Short and simple answer? It’s complicated.
The crash of ’08 is frequently invoked by those that believe we are due for another, worse crash, and by those that believe the real estate market is going to continue on without a major reset. In 2008, the crash was caused by an excess of supply and inadequate demand, exacerbated by the feds raising the interest rate. Sound familiar? It should, we’re seeing some of those factors again.
Do we have an excess of supply and inadequate demand? In Lane County, no. There is insufficient supply to satisfy an often frantic demand. What we do have is a lack of qualified applicants, leading to longer turnover rates. What we do have is an economy that is struggling. What we do have is applicants that are unable to accurately assess their financial state and believe they can afford housing that is beyond their means. What is driving this oversight? In many cases, desperation.
Insufficient supply. Excess of demand. Lack of qualified applicants. An economy that can’t continue to support rents that leave even landlords incredulous. Those factors lead to one conclusion. We have a manufactured excess of supply and inadequate demand. Rents are no longer rising at the rates we’ve been seeing for the past seven years. But they aren’t going down either.
Now we move onto the selling market. Will the market bubble burst? Again, we can only answer that it’s extremely complicated.
Due to rising interest rates, people are reluctant to enter the first-time home buyers market. Houses are staying on the market up longer than we’ve experienced in the past few years. I consulted with a company that deals in flips. During 2021, it was common for them to purchase a home at $50,000 above the asking price. As of this month, they are purchasing homes at $50,000 below the asking price.
But-… people still need a place to live. The houses are still selling. Homes are still renting and even in the 2008 crash rents only went flat.
As of the time of this writing, I do not believe the rental market or the selling market is due for an immediate crash. That doesn’t mean there isn’t one in the future, but it is not happening next month. Next year or the year after? Maybe. The real estate industry is extremely sensitive to the political clime, and only time will tell what the future holds.
If there is a crash, what will landlords do?
The Federal Reserve has placed interest rates way too low for way too long. This in turn has driven inflation up and with it asset and commodity prices. A lot of people who did not want to get left behind were pushed into becoming home buyers before they were ready. And with the cheap carrying costs, they were able to afford their new home. Now that prices have come down they are left with little or no equity in the home. Now rising interest rates may trip new buyers into losing their homes and becoming renters again. If the landlord is prepared, they could easily add a few of these newly available homes to their portfolio. Furthermore, this will put more pressure on an already low rental inventory situation making the savvy landlord look like a genius all over again.
As always, Happy Landlording.