How are rental rates impacted by decling prop value?

This question may be to broad to answer generally…but…

How are rental rates impacted by declining property values?

or in the alternative

How are rental rates impacted by increasing mortgage rates?

Mackie -

that is tough to answer in general terms, but here are some generalities I’ve kind of caught onto in the 10 years we’ve been doing rentals

-lower interest rates = more people buying houses, so I guess you could make a case for the reverse, or, as interest rates rise buying should become less attractive - therefore more renters

-we’ve always operated on the theory (and it’s never let us down yet) that we want to have the nicest available rental at any given time. That way if someone is comparing ours to another one down the street they’ll want to live in ours. Fortunately over the years we’ve become proficient at doing this with little money/effort.

I can’t honestly say I’ve ever been in a market with declining property values, so I can’t really address your initial question. It does make one think, though, that’s one more good reason to ALWAYS buy investment properties UNDER value!!

Karla in Amarillo

Just some thoughts.

The harder loans are to get, the more renters there are. For example, there are a whole mess of people walking around with no savings and a regular income. Therefore, if they can get 100% loans, they are in. If you ask those same people to put 5% down, especially with higher home costs, many are out and become renters. Ask for 10% down, more and so on.

Interest rates have some to do with it but it takes a meaty increase to do it. An increase of 1-2 % won’t make anyone’s life unbearable. However a 5%+ increase can. This all goes back to ease of getting a loan and terms.

Right now anyone with a pulse and decent credit can virtually just say “yes” and walk into a property. If that changes, the number of renters will increase.

As to property values, that probably depends on the area and why they went down. I would think a decrease due to neighborhood value would be detrimental to rent price. However, a price correction in the market might not matter much, especially in areas where rents are a micro % compared to the home price. Also if loans are harder to get, rent values would stay stable.

Just some thoughts. Love to hear more.

I certainly agree with what people say about interest rate affectin who can “afford” to buy or not

the rental market is really driven by supply and demand; the underlying “value” of the property does not mean much. People usually have a certain amt of money for the rent and they want to get the best thing out there for their money. If property values drop, you will probably see more house on the rental market as people end up moving for jobs, etc , but can not sell since they are under-water (only “solution” is to rent). Droping house prices can also be a result of a poor economy and thus decline rents might be driven by lack of wage growth, high un- or under-employment, etc.