We put our rental property on the market this week. Last month would have been better. This week the real estate market is showing strains from talk of WWIII, high gas prices and out of sight inflation, with the last two expected to get worse as the war goes on. While our market has less than 1 month’s inventory up for sale, and we are still experiencing a feeding frenzy because of the low inventory, there are signs of a slow down.
One sign was 4x the normal number of buyers getting cold feet and pulling out of the purchase. Our Realtor shared those properties with us, and it seems to be primarily first time homebuyers getting cold feet. This is the market I expect would be the first to no longer be able to afford to buy a property. Whether or not they will be able to continue to afford to rent is another question, as I am seeing rents gap up 20-30% across the board.
We still had a good number of people come through the property this weekend, which in recent history would have been enough to produce a fistful of contracts above ask, many for cash and even waiving inspections. Instead, we got requests for information about how much utilities cost. I wonder what this weekend’s tours will bring. Appointments are still very high, but we are only doing tours on the weekends to accommodate our tenants.
We are more fortunate than most, given should no buyer be found by mid-April, we will simply put it on the rental market and take the remaining 6 weeks of our current tenants’ lease to find new renters. Our expenses are not going up nearly as much as the 23% rent increase we will implement to provide a rental that is at the lower end of comparable property rents. We are in a win win situation, so this is not a complaining post, just an observation of how the war seems to be impacting the housing market at least in our specific area.
…signs of a slow down…
I saw prices plateau last summer, when the first frenzy subsided. Still haven’t seen them go down in general.
…We are asking a price that surprised me… (from other board)
I think this is the overriding factor.
As always, houses in good condition/location (like yours) that are a tad underpriced get snapped up quickly. Those priced at or above FMV take longer, but when they do sell it’s typically for just under asking. Luckily, you’re not in a hurry -actually, don’t have to sell at all- so can play the waiting game (if you have the patience for it, which I personally never did).
…signs of a slow down… I saw prices plateau last summer, when the first frenzy subsided. Still haven’t seen them go down in general.
…We are asking a price that surprised me… (from other board) I think this is the overriding factor.
Prices have not started going down. It just now takes more than 24 hours to get a house under contract. The houses that fell out of contract, which was my example, were not overpriced but in the starter market. Pure cold feet. As to ours, time will tell.
been checking zillow daily since about 2018
Zillow and their Zestimates are part of the problem. They had the Zestimate at $75K below ask when listed, and now $75K over ask less than 1 week later, stating our property should sell 96% faster than properties around us. (Wow. Precise.) It’s been like this for every property I’ve owned. No wonder they lost money believing their own work. Now that Zillow is saying we are underpriced rather than overpriced, I suspect it will move faster. I know the Zestimates are BS but psychologically, they impact buyers, even me.
Yes, we are definitely at FMV. I had our Realtor walk us through the first set of comps and sent her back to pull comps based on a different set of criteria that pulled in properties without things like our garage which is highly desirable but unusual here. Still showed the same price point, and having been a Realtor I worked the numbers as well from the comps I had been saving these past 5 years. She put quite a bit of work into it and it will appraise. We don’t need the money, which is IMO the best time to sell. I am super patient at both buying and selling. That said I am leaving money on the table as well as the work that would have to be done to get that money. Our small city is so desperate for affordable housing and working on rezoning our area to allow for 3 units instead of 1. We have a good yard for it. Our house would make a great over/under duplex with another unit in the rear. Smaller apartments rent for more money per square foot/bedroom/bath than larger single family homes and land is crazy expensive in our housing challenged city. Bottom line is that there is super low inventory and this is the time for both the university and the hospital to put out contracts. Slowdown starts in June here.
Everyone knows their own business, property, customers, and prospective tenants the best so anything I say - is solely about my little lot in life.
The sole effect I feel the Ukraine has on renters - maaaaaaaybe is general attitude but I think this can be said for the renter. The buyer. The WalMart Shopper. The Whole Foods shopper. Or the people in the McDonald’s drive-thru line that I can see right now - as I enjoy a quiet parking lot fast-food breakfast:). People - be it war, weather, the latest controversy are owned by their phones and media of choice. If Weather Channel shouts “wintery mix” - the Moms in in the pick-line at school will be crowing the same words when in reality I feel like saying “it’s winter. It snows. Get over it you’ve seen it all your life”. Is it sad to see the suffering? Sure. But take your pick: Uyghurs in China have suffered much longer - and China is rewarded with commerce. Palestinians have suffered decades - I don’t see Big Mac pullouts in that neck of the woods either. Right now the atrocity in Ukraine is on the news, and sure, it affects all of us to some degree.
I look at my rentals: One fella - 2 degrees, decent job at a major beer company, perfect credit. Another one -parents are construction and immigration advocate - yo and young child. I just don’t see how Ukraine affects them as renters.
One concern I have. Home prices are UP- great for me. Rent rates are UP- great for me. Buuuuuut…I have noticed a reduction in volume of applications and I don’t think it’s Ukraine - I think that the higher rent goes - the less people can afford it and we’re going to see the free market slug it out - do people step up to rent? Do landlord reduce rent?
6 months ago, I had 2 rentals $ 1800 rent - BOTH got tons of applications - good ones. So - I veered a bit from my discipline and bought a slightly more expensive unit - - I need $2300 for it. I got far LESS applications. I just don’t think someone was affected by Ukraine- I think there’s less someones who can pay $2300 rent.
Flipside - we just signed up a tenant for this place. Not mine to judge but it’s a creditworthy tenant - -his 20 year younger “fiancé.” Cursory poking around shows that he and his wife life 40 mins away. I have reason to believe this won’t be a perfect 24 months like I’ve always, always had. But hey - the security deposit and 1st month is paid. I sure hope him and his fiancé get along for awhile.
So… I played the Love-Shack theme from the B52’s while I signed my part of the lease paperwork.
6 months ago, I had 2 rentals $ 1800 rent - BOTH got tons of applications - good ones. So - I veered a bit from my discipline and bought a slightly more expensive unit - - I need $2300 for it. I got far LESS applications. I just don’t think someone was affected by Ukraine- I think there’s less someones who can pay $2300 rent.
Rents are set by what the market will bear, not what the landlord needs to get from the rental. What you need to get from a rental only helps you decide if it’s worth buying or not, based on what the market will bear.
Our area’s rents have gone up in an insane way as well as sales prices. If the property is not under contract by mid April, we will be putting it back in as a rental, with rent going from today’s $2350/month to $2900. The rental market is telling me that will still keep us towards the bottom prices of quality SFH rentals in the area. It is always uncomfortable being in a market where a rent check is higher than a mortgage payment. That does not lead to long term tenants, and costs the bottom line. That was a problem for us in a previous rental in a different state when housing and mortgages were low priced, and inventory high, but there is no inventory available now, (or seemingly ever,) and costs are high and increasing. I have learned to be much more selective in rental property location. Those buy/rent calculators were screaming buy before these changes in prices. I suspect they would just be screaming it louder now.
The $2300 was based on comps. By “I need” I meant - based on study and projections before buying it - my realistic expectation was $2300. Less than that - well, it won’t be as decent ROI as I forecasted.
2 minutes away there’s NEW townhomes. Same size - but spanking new and lovely. All the pretty appliances, etc. Those are being rented around $2900. They are getting signed up but they seem to stay available for 30,40,45 days - -whereas my $1800 units - it was a matter of 5-8 days and we had some quality applications on hand.
Yes, the market decides - part of that is the cost basis of the home. My worry is - I read about ‘expectations’ that rents will continue to rise - I"m just wondering who those tenants will be at those high rent levels so that’s where it will be interesting at least for me to see - do future tenants shell out more, or do landlords have to back down a bit.
12 days after the first tour came through, we negotiated back and forth on a contract and the house is now pending. Cash offer, no appraisal, $30K earnest money, inspection where they can only leave the contract or renegotiate if more than $5K in problems, more than 97% of asking price. Quick close with them taking over the tenants so I don’t even have to stress about damage from their moving out or their inability to move out in time for closing.
We are in an exceptional area during an annual short burst of critical shopping by medical workers who have just accepted a contract that starts in June and need to find a place to live. I don’t know if what we experienced would be applicable elsewhere, as is so very often the case with real estate. When they say location, location, location are the 3 most important criteria to consider in buying real estate, they are not kidding. Focusing on broad economies and constraints on supply are two key search factors.
It took a lot of hard negotiating to get to this contract, which did not start with such a good offer. Our Realtor said the success hinged on it being a proven rental with rent being increased 20% in June if we pull it off the market. One of the parents is a real estate investor and I guess she recognized we had more options than they did given the less than 1 month inventory of homes for sale in our area, and only a handful of properties if you want to be an easy drive to the hospital. The escalating rental market definitely helped our sale, giving the new owners the same fall back position we had if they can’t sell it for what they want when they relocate.
I wonder with escalating mortgage rates, how many young people will be able to afford to buy a home without significant help from their parents like this buyer had. We expect to do this with our newly minted professional after a year on the job, if he decides he would like to buy rather than pay the exorbitant rental prices in his city. We are in a time where the rent/buy calculators swing strongly to buying a home being your best option, and a time where that is becoming increasingly hard to do. And lets face it, not many parents can afford to help their kids this way. We are privileged.
We are in a time where the rent/buy calculators swing strongly to buying a home being your best option
That could quickly change when mortgage rates hit 5% and 6% next year! (they probably won’t though, because the fed will be forced to back off in 2 ways, first they will likely slow their interest rate increases, and second, they will have to start buying mortgage debt again).