We’re witnessing deflation and rising unemployment, resulting in trailing decreases in consumer spending. The movement towards thrift spending has impacted the housing market, and I am noticing a couple of obvious trends.
1) Empty nests are being filled
Renting is the largest living expense and consumers are moving home to reduce that cost. Many recent college graduates, young professions, and the unemployed will be forced to move home.
2) Per unit occupancy is increasing
Before the recession, a typical 4 bedroom unit would house 2 or 3 occupants. Now, residents are forgoing the luxury and privacy of living alone, and moving in with roommates. We will continue to see a trend of more one bedrooms vacant compared to cheaper four bedroom counterparts.
3) Influx of second homes becoming rentals
As downward pressure is placed on the pockets of the upper-middle class, many owning vacation homes will begin to seek additional income via rent. With some 6.6 million units classified as “second homes”, this will results in more rentals on the market.
4) Rising vacancy, declining home purchasing
We’re seeing a positive correlation between the volume in home buyers and renters…And by positive correlation, keep in mind that I mean they are both decreasing.
What does this all mean? Simply put, increases in vacancy and decreases in rental rates. It does not mean that the rental sector will resemble the price sensitivity of the airline industry, but we will see a push towards more affordable housing options. Anecdotally speaking, I've seen my properties decrease 10% in rental rates yoy.
How do you combat the current economic crisis? Unfortunately, I do not know the exact answer, but the first step is to recognize that profits equal revenue minus costs. It will be increasingly more difficult to increase revenue as the downtown continues, but you can take advantage by reducing costs. Again, we're seeing deflation, so renegotiate contracts with your vendors, maintenance companies, etc. Reductions in operating costs, advertising costs, staffing costs, turnover, and other line items can help you stay afloat.
What other trends are you seeing?