Real Estate Rental Market Meltdown

Although this video is talking about a Texas housing neighborhood, the drop in the real estate rental market is happening in many communities throughout the United States.

This video brings up an important point in our current real estate market that many have overlooked. Now, I said this in my prior commentary on the housing bust, but it’s important enough to say it again right now. It’s my opinion the big difference between our current real estate market downturn and our last big downturn which we saw around 2006, is the fact that there are numerous investor groups, which during the last two years have been buying up single family homes and condominiums as investments.

Real Estate Rental Market Meltdown

Over the past few years, real estate prices were skyrocketing and rental rates were also going up dramatically, many would-be investors believed that this trend would never end,  or at the very least, go up high enough so that they can have made a double digit return on their investment within a short time frame.  Now, this is important to understand, real estate investors are not like real estate homeowners, who are living in their property and it’s their principal place of residence. Real estate investors are looking for the quick profit, and many had hoped to rent out their homes for an a rental amount that would exceed what the carrying costs were, or at the very least, cover the majority of their cost.

Rents have surged across America during the pandemic. But now they are starting to decline. Which is a big problem for investors. Cap rates are already far below mortgage rates, and they could decline further. Meaning an investor fire sale is on the way in many markets – especially those in Florida, Texas, and Arizona.

Now, that the rental market is also crashing, these investors dreams of a positive cash flow are evaporating. Real estate investors unlike homeowners are going to be quick to pull the trigger and sell these properties once the realization occurs to them that there’s not going to be a quick turnaround in either real estate appreciation or rental rates.

Yes, this is like a ticking time bomb. Because there are so many investor-owned properties in many of the hottest real estate markets, when these investors see that they’re running negative, they’re going to start to unload these properties in order to cut their losses.  Yes, it’s going to be the rule of supply and demand.  When  many of these investment properties hit the market we’re going to have a huge increase in inventories which is going to precipitate further housing price depreciation.

For the many overly optimistic, who’ve been saying that this current downturn is not going to be the same as our prior downturn, you are 100% correct!  I think there’s a good probability our current downturn is going to be much worse then what we saw some 15 or so years ago!

Now, this is just my opinion but I’ve been in residential real estate for over three decades, so I believe my opinion is one that you should not bet against!

Real Estate Rental Market Meltdown

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