One of the most common questions we get is…what’s the rental market like or how long till my house gets rented?
Well….that depends on many factors, currently we’re in the holiday season and that tends to slow things down quite a bit, however, this year we are seeing an abnormally slowing market.
So ….
What I think people are really asking is:
What will the market do in 2023? And more importantly, how can an investor prepare for a changing market?
Before we get into the nitty gritty, let’s review a few articles that map out what’s going on.
An interesting report from Real Page says Apartment rents fell .6% in October from September which is the 3rd largest drop since 2010
https://www.realpage.com/analytics/us-apartment-demand-plunges-3rd-quarter/
Of course the apartment world is different from the SFR world…but what happens in the apartment world inevitably happens in the SFR world…..and sometimes it’s the other way around depending on where you live.
For instance, in some of our SoCal markets apartments are still red hot, but SFR’s are sitting for months.
The Wall Street Journal had an article on Oct 25 that said demand in the 3rd quarter fell to its lowest level in 13 years
And one final article from Apartment List says these past 2 months have marked a rapid cooldown in the market as rents fall month over month in 89 of the 100 largest cities.
https://www.apartmentlist.com/research/national-rent-data
So…to sum it up…it’s normal for the market to be slow right now due to the holidays…but it’s abnormally slow, we’re seeing properties sit on the market longer than ever for our company, specifically the SFR rentals.
With the bad news out of the way…let’s get to some nitty gritty of what to expect for your rentals.
Remember….Real Estate is cyclical It’s up and down and up and down. I don’t think we’ll see a major market crash with bailouts, but those that were smart and held on to some of the cash
when the market was really in an upswing, will be better off than those who never thought the market would go down again.
First …Let’s take a break and take a deep breath….do I think it’s time to sell it all and leave town…nope…this is a correction from the white hot market we’ve had over the last 2 years.
Property Managers and Sales agents didn’t have to work to get things done. Those days are behind us and we’re going to need to get creative to get things moving.
Next…Rents are going to go down, but they don’t fall in a predictable pattern, it’s generally a more odd way like a toy car that has uneven wheels. While this home may rent quickly and similar home one street over may not rent for months and require a significant rent reduction to place a tenant. Which means there’s not going to be a one size fits all answer to getting every home rented. Also, when we go to do our annual assessment of the property, if the resident is paying at or above the market rent, we likely won’t raise the rent. If they are good paying tenants who keep the property in good shape…we want to keep them there in a slower market.
We’re still going to have a housing shortage especially here in CA, but the rental market is going to start seeing an increase in supply….which means lower rents.
How do I know this….
We get calls almost daily from sellers whose property has been on the sales market and hasn’t sold. Now they need to turn it into a rental because they took a job out of state or have purchased another home already, this will dramatically affect the SFR market.
Another market that I think will be impacted is the short term rental market, there have been reports that up to 50% of the AirBNB’s purchased in the last year aren’t able to be filled….those
are now turning into long term rentals…once again creating more inventory in the rental market.
Demand is also decreasing as people choose to move back home with parents, find roommates, or simply choose not to move.
How can we prepare for this change?
- Price the property according to the market value. We know you want to cover the mortgage and make a little money on the side, however, that may not be possible.
- Be creative – along with the rent drops, we may need to offer a move in special, free (to the tenant) application fees, reduction in credit score etc.
- When you use WPM you’ll get a report weekly that will let you know the interest of your property. If we aren’t seeing much activity after a couple of week, we’re going to suggest a price reduction….it’s not what anyone wants, but it’s going to be necessary.
BIGGEST THING TO TAKE….DON’T WORRY…REAL ESTATE IS CYCLICAL AND THIS IS NORMAL.
