Jump to content
House Price Crash Forum
Sign in to follow this  
HouseDog

What Happens To Rental Prices During A House Price Crash?

Recommended Posts

Hi All,

My other half asked me question about rental prices which I have no idea on!

In a House Price Crash - what happens to rental prices?

Is there any historical data or has anyone got a good theory?

Share this post


Link to post
Share on other sites

Hi All,

My other half asked me question about rental prices which I have no idea on!

In a House Price Crash - what happens to rental prices?

Is there any historical data or has anyone got a good theory?

Rental values should fix capital values but right now they are completely out of wack. As an instance if the rental yield was 10% and the rent was 10K per annum, then the capital value would be 10x10=100K. As yields fall, capital values increase. So if yields were 5% and rent was 10K then the capital value would be 200K. Right now yields stink but most BTL investors don't even know it as they are on IO mortgages. With no capital growth most will be screwed come capital repayment time. In addition they figure in nothing for depreciation, rental voids etc. As an instance I live in an apartment with a capital value of 220K. I pay 7,200 per annum. Yield is therefore around 3%. I moved in after it had stood empty for around two months at the beginning of the year. true yield on this is therefore around 2% or slightly higher. It is an old building and needs money (considerable money) spending on it. My LL will certainly lose money in the coming years, as will most. Hope this explains a little.

Tom MRICS

Share this post


Link to post
Share on other sites

Hi All,

My other half asked me question about rental prices which I have no idea on!

In a House Price Crash - what happens to rental prices?

Is there any historical data or has anyone got a good theory?

From my own experience I have noticed the following. Initally rents seem to rise as potential first time buyers chose to rent rather than buy and some more astute landlords chose to sell their btls, this increases demand and reduces supply in the rental sector and naturally pushes up prices. After some time, prices will dip as more and more accidental landlords are forced to rent properties which previously they would have sold (for example married couples retaining 2 properties, those emigrating for work having to keep their property in the home country etc) but eventually a price equlibrium is reached and rents tend to remain static whilst much of the crash plays out. Towards the end of the crash prices will have fallen and rents remained fairly static and therefore rental yields start to make sense again and btl landlords return to the market, they buy property at a much lower price than previous landlords and can therefore afford to accept a much lower rental figure, initially this does not happen and they rent out at market price. As the crash bottoms out, renters themselves start to purchase houses and the demand for rental property falls and naturally so do rents, those landlords that purchased in the years preceeding the crash find themselves in real difficulty as the rent no longer covers outgoings and they are forced to get out and sell their properties at the worst time possible further contributing to the house price crash. Eventually house prices start to rise but a lack in demand for rental properties will continue to push rents down.

Share this post


Link to post
Share on other sites

From my own experience I have noticed the following. Initally rents seem to rise as potential first time buyers chose to rent rather than buy and some more astute landlords chose to sell their btls, this increases demand and reduces supply in the rental sector and naturally pushes up prices. After some time, prices will dip as more and more accidental landlords are forced to rent properties which previously they would have sold (for example married couples retaining 2 properties, those emigrating for work having to keep their property in the home country etc) but eventually a price equlibrium is reached and rents tend to remain static whilst much of the crash plays out. Towards the end of the crash prices will have fallen and rents remained fairly static and therefore rental yields start to make sense again and btl landlords return to the market, they buy property at a much lower price than previous landlords and can therefore afford to accept a much lower rental figure, initially this does not happen and they rent out at market price. As the crash bottoms out, renters themselves start to purchase houses and the demand for rental property falls and naturally so do rents, those landlords that purchased in the years preceeding the crash find themselves in real difficulty as the rent no longer covers outgoings and they are forced to get out and sell their properties at the worst time possible further contributing to the house price crash. Eventually house prices start to rise but a lack in demand for rental properties will continue to push rents down.

Nice synopsis.

Share this post


Link to post
Share on other sites

Rental values should fix capital values but right now they are completely out of wack. As an instance if the rental yield was 10% and the rent was 10K per annum, then the capital value would be 10x10=100K. As yields fall, capital values increase. So if yields were 5% and rent was 10K then the capital value would be 200K. Right now yields stink but most BTL investors don't even know it as they are on IO mortgages. With no capital growth most will be screwed come capital repayment time. In addition they figure in nothing for depreciation, rental voids etc. As an instance I live in an apartment with a capital value of 220K. I pay 7,200 per annum. Yield is therefore around 3%. I moved in after it had stood empty for around two months at the beginning of the year. true yield on this is therefore around 2% or slightly higher. It is an old building and needs money (considerable money) spending on it. My LL will certainly lose money in the coming years, as will most. Hope this explains a little.

Tom MRICS

Planning on cashing the gold in at the right time and becoming one of those landlords getting 10k per annum on a 100k house B)

BTL brigade, you are about to learn a hard lesson in market timing.

Share this post


Link to post
Share on other sites

From my own experience I have noticed the following. Initally rents seem to rise as potential first time buyers chose to rent rather than buy and some more astute landlords chose to sell their btls, this increases demand and reduces supply in the rental sector and naturally pushes up prices. After some time, prices will dip as more and more accidental landlords are forced to rent properties which previously they would have sold (for example married couples retaining 2 properties, those emigrating for work having to keep their property in the home country etc) but eventually a price equlibrium is reached and rents tend to remain static whilst much of the crash plays out. Towards the end of the crash prices will have fallen and rents remained fairly static and therefore rental yields start to make sense again and btl landlords return to the market, they buy property at a much lower price than previous landlords and can therefore afford to accept a much lower rental figure, initially this does not happen and they rent out at market price. As the crash bottoms out, renters themselves start to purchase houses and the demand for rental property falls and naturally so do rents, those landlords that purchased in the years preceeding the crash find themselves in real difficulty as the rent no longer covers outgoings and they are forced to get out and sell their properties at the worst time possible further contributing to the house price crash. Eventually house prices start to rise but a lack in demand for rental properties will continue to push rents down.

Thanks. Well explained.

Speaking as a London renter it's seem to me we're in the initial "rents seem to rise" phase. I'd extend that to Surrey as well because I was considered moving out of London to save money, only to find it's just as expensive immediately outside London now too.

Share this post


Link to post
Share on other sites

your thesis seems predicated upon the notion that demand,housing benefit,economic activity and banking leverage are constants,which they aren't.if they were you'd be right.

if HB does get cut so that under 35's will only get roomshare equivalent,then demand for one beds will drop.

if unemployment creeps up or wages get cut,we may see net migration back to the EU.

if banks are unable to maintain they're 'understanding' support for commercial/residential LL's,then repossessions may stay low,which might be supportive of rents.if they aggressively foreclose and try to sell stock,it could reduce supply and be a factor pushing rents up.only if banks repo and become LL's themselves could it possibly increase rental supply.

if people react to the downturn by moving back in with mum and dad,or flatsharing to save money,then demand could well drop.the amount of people searching for roommates in postcodes I monitor has doubled over the last two years or so.Not scientific I admit,and it could be down to the websites I follow picking up traffic.

rents never tracked the hosuing market up,so I would err on the side of them having no influence on rents whilst they go down,rather they are a function of wages in what is effectively a cash market.

my personal opinion is that they will follow the economy down but nowhere near as much as capital values.

Actually, as mentioned in my post, it's based on my own first hand personal experience of renting whilst house prices were collapsing around me. You're right though, it's a rather simplistic view that doesn't take into account a number of potentially important factors (specific to the UK) that could skew things either way. Eventually though, I think some of the things you mention will just become little more than background noise as the sheer brutality of economic force steamrolls anything that government, banks or private individuals use to try and slow the inevitable.

I have seen enough of the early stages of the house price collapse in the UK and the reaction of rents to that, to be fairly confidient in the belief that things will pan out simililarly here. House prices will fall, rents will eventually fall but in the menatime there's likely to be some up and downs that may well seem counter intuative given general economic conditions.

Share this post


Link to post
Share on other sites

From my own experience I have noticed the following. Initally rents seem to rise as potential first time buyers chose to rent rather than buy

Yep, people who could buy choosing to rent instead means more non-poor renters, and thus more demand for decent-quality rentals.

Fortunately the supply of decent-quality rentals rises too, due largely to unplannedlords letting out homes of a quality they were happy to live in themselves. That effectively kick-started the huge improvement in rentals we had in the '90s.

and some more astute landlords chose to sell their btls, this increases demand and reduces supply in the rental sector and naturally pushes up prices.

If they sell, then someone must be buying. Either it's another BTL (leaving the supply unchanged) or it's an owner-occupier (reducing demand, 'cos they no longer need to rent).

If you're seeing a reduced supply, that's down to a rapid rise in the number of empty homes.

Here's my take on it:

Side-Effect: Rise of the Rental Market

A well-documented fallout from the crash is the rise of the rental market:

  • People unwilling to sell at current prices are letting their houses instead.

  • People waiting for further falls are choosing to rent for the time being, even those who could afford to buy.

So suddenly the rental market has changed. The quality has risen – with lots more houses than before that the owners thought good enough to live in themselves! And the status of tenants has risen too: it’s no longer so heavily dominated by those too poor to get a mortgage (and too honest to lie for one). And because the UK rental market is traditionally small (most people own their own home), the effect on it is disproportionately large. Even if the traditional rental market (the rich exploiting the poor) were little-changed, the overall market has risen with the coming of the new landlords and tenants.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.