Does Rent Go Down In A Recession: Rents & Home Values

The Big Picture On Whether Rent Goes Down In A Recession:

• • During recessions, home values often decline due to decreased demand, while rents tend to remain stable or even increase, as more people opt to rent instead of buy.
  • Recession’s impact on rents varies by location; areas with significant job losses may see increased vacancies and reduced rents, whereas regions with diverse economies might experience stable or rising rents.
  • The current economic downturn has led to high unemployment and financial strain, but the real estate market’s response differs from past recessions, with some areas experiencing rising prices.

As we round the corner to the last quarter of the year, the United States continues to fight against economic uncertainties.

Because we’ve experienced many recessions in the past, we have a pretty good understanding of what to expect—generally. However, as we saw with the pandemic, the causes and effects of one recession can vary greatly from one to another.

A recession occurs when the overall economy in a specific area experiences a significant decline. By definition, recessions mean at least two-quarters of economic shrinkage. If the economy continues to decline for multiple years, a recession becomes a depression.

There are several key economic factors in recessions. The health of the economy is based on the performance of:

• • Gross domestic product (GDP)
  • Personal income
  • Employment
  • Manufacturing
  • Retail sales

While no one indicator is entirely dependent on another, when one gets wobbly, it can cause a domino effect, causing the other indicators to behave similarly.

Recessions can cause unemployment rates to skyrocket and personal incomes to decrease. Naturally, this puts even more financial pressure on many homeowners and renters, as we’ve seen since the COVID-19 outbreak.

Sure, we adapted to our “new normal,” but still, it’s important to understand what to expect from real estate during the recession. What happens to real estate in a recession? How do rents and home values typically move in recessions, and will rents and home prices decrease?

What Happens to Real Estate in a Recession?

When the overall economy is suffering, more people lose their jobs, which causes some to pull out of the house-hunting game. In past recessions, we’ve seen certain markets experience a drop in demand for homes and a rise in supply.

Home prices will typically dip when this happens, adjusting to market conditions. But not all recessions are the same. Let’s examine how real estate has been affected thus far.

What Happens to Real Estate Values in a Recession?

We know that recessions can be caused by various factors and last for varying periods.

Many of us remember the Great Recession, the most recent recession caused by a mortgage meltdown. This particular recession greatly impacted the value of homes. In fact, the 2008 recession was actually centered around the real estate industry and even caused by it.

Loose lending allowed more people to qualify for homes, driving home prices up to inflated levels. Easy lending also allowed more builders to create more inventory, flooding the market with new homes. When adjustable-rate mortgages reset to a higher rate in 2006 and 2007, many borrowers could not make the new payment. Mortgage defaults started to soar as people with no money in their homes walked away from the new, higher payments.

The real estate market soon became inundated with overpriced, empty homes that eventually were taken back by the banks. The housing bubble popped, and home prices came crashing down. The Great Recession lasted over two years and forced millions of people to become renters, as they lost their homes to foreclosure.

The Great Recession is unique because it was triggered by easy lending standards, including no down payment requirements, low or no documentation requirements, and qualification based on a teaser rate versus the actual rate – on both primary and investment properties. Anyone could qualify for a mortgage, whether they could afford it. It should have been no surprise that that house of cards would eventually fall.

However, not all recessions are caused by loose lending. In the ‘70s, it was caused by the oil embargo. In the ’80s, it was caused by junk bonds. During the ‘90s, it was oil again. And in the early 2000s, there was speculation in the tech industry. These recessions didn’t always impact the value of homes; if they did, it was market-specific. In fact, in several past recessions, home prices increased.

Types of Economic Downturns and Their Real Estate Impact

Since we’re on it, here’s an overview that shows how different economic challenges can affect property values in distinct ways.

Brian’s Note: Take a look at median US home prices since the ‘60s, with recessions highlighted in gray:

Home values will likely decline in some markets during a recession, but not always. Home prices were also less impacted during shorter recessions.

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What Happens to Rents in a Recession?

Rents can go up or down in a recession. The location of a rental property and how hard a recession hits the local economy will dictate whether rents go up, down, or stay the same.

For example, a working-class housing market that experiences huge job losses during a recession will likely see an increase in vacancies, forcing rents down. This happened in North Dakota in 2015 when oil prices plunged, as the economy in North Dakota was highly dependent on high oil prices.

On the other hand, if a property is located in a less vulnerable area and/or occupied by a tenant with more resources, rents may generally stay the same during a recession.

Houston, Texas, serves as a great example of this. Even though oil prices plunged in 2015, home prices increased in Houston, mainly because the metro area has a diverse economy that no longer relies primarily on oil production.

Brian’s Note: Rents tend to remain more resilient than property values in a recession. At worst, nationwide rents tend to flatten out during recessions – see this chart:

But as Kathy points out, nationwide averages can conceal some markets rising while other markets fall in recessions.

What’s Happening to Real Estate Right Now?

The biggest crisis in real estate today is not vacancies or delinquencies. It’s a lack of supply. There doesn’t seem to be an end to the affordable housing shortage across the U.S. In many cities, income is not keeping up with increasing rents or home prices, adding even more financial strain to renters and home buyers.

According to Harvard University’s State of the Nation’s 2024 Housing Report, 67% of renters earning $30,000-$45,000 annually spent too much on housing in 2022. This is up from 64% in 2019 and 52% in 2001.

To solve this issue, more affordable low-income and middle-income housing needs to be built to meet the demand of buyers and renters. Unfortunately, building costs have increased substantially over the years, making it virtually impossible for builders to provide affordable housing. Most of the new inventory built over the past decade has been on the higher end, as it’s the only way for builders to profit.

The pandemic has caused slowdowns in both manufacturing and construction, further exacerbating the problem. Some builders have stopped building entirely, while others have slowed down substantially. According to the US Census Bureau, fewer building permits were issued that year, and housing starts and completions were completed more than a year ago. This trend tells us that this lack of supply may continue for the foreseeable future.

Will Rents Go Down This Year?

Single-family rental rates have stayed consistent and even increased in some areas. A new de-urbanization trend is emerging: people are moving out of the cities and into the suburbs in search of more space.

According to a report by Apartment List, the national rent index fell by 0.7 percent from October 2023 to October 2024. To put this seemingly nominal number into perspective, since 2014, rents have grown between 1.0 percent and 1.7 percent (from March to June). 

The following cities are experiencing the biggest drops in rent while the suburbs are gaining speed:

• • Austin, TX
  • Punta Gorda, FL
  • Weirton, WV
  • Cape Coral, FL
  • Brunswick, GA
  • Killeen, TX

At a national level, rents have not dropped significantly since the pandemic. 

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What Does a Recession Mean for Renters and Property Owners?

The real estate story in a recession isn’t just about numbers—it’s about people. Renters might wonder if a recession could finally bring some relief from rising housing costs. Although we’re seeing rent drops in expensive cities like San Francisco and New York, the reality is more complicated. Even with job losses and economic uncertainty, many renters struggle to find affordable options, especially in areas with strong job markets.

As for landlords and property owners, recessions bring their own set of challenges and opportunities. Sure, you might face some increased risk of late payments or vacancies. But as we discussed earlier, the current housing shortage means rental demand stays strong even in tough times. Just look at what’s happening in the suburbs, where demand is actually increasing as people seek more space and affordability.

Making Smart Moves in a Tough Market

If you’re a landlord right now, you’re probably wondering how to protect your investment while keeping your properties occupied. The data tells us those sky-high rents might not be your best strategy. Remember those statistics we mentioned about renters earning $30,000-$45,000? When 67% are already struggling with housing costs, pushing higher rents might backfire.

Instead, try adapting to what works for both you and the tenants. That might mean modest rent increases to keep good tenants in place or updating properties to match new demands—like creating better work-from-home spaces. After all, as we’ve seen with the de-urbanization trend, tenant preferences can shift quickly.

Will Home Prices Go Down This Year?

It’s still hard to say whether home prices will go down this year as markets will be affected differently. It has been over 4 years, but the COVID-19 outbreak slowed real estate activity, mainly due to a lack of inventory as more people stayed put and few wanted strangers walking through their homes.

Even though home sales declined for this reason, home prices held relatively steady. “Safer at home” guidelines have elevated the home to a whole new level of importance, along with a new set of needs—like home offices, better kitchens, and yards for outdoor privacy.

In August 2024, 4.2% fewer existing homes were sold than a year ago. Meanwhile, the NAR reported that the average price of single-family homes nationwide went up 2.9 percent compared to 2023. 

The lack of affordable, low-to-mid-priced homes and high demand are increasing home prices in some areas.

We are already seeing a leveling out or drop in markets where household incomes have failed to keep pace with the increasing price of homes. The question is, which markets will meet the demand for affordable housing?

The shortage of affordable housing has translated to a shortage of affordable rental housing as well, while rental demand remains strong. This is good news for real estate investors.

When the Government Steps In

We can’t ignore the government’s role in the rental market during recessions, but it’s not the whole solution. Unlike past downturns, when homeowners received most of the attention, we’re seeing more focus on helping renters stay stable during tough times.

But here’s the reality check: even with various assistance programs and temporary measures, we still face that major affordable housing shortage, both for renters and buyers.

The recent Harvard University housing report made it clear — this isn’t a problem that’s going away anytime soon.

What’s really interesting is how all these pieces fit together. Government programs might provide some short-term relief, but the real driving forces are still the basics – supply and demand, local economic conditions, and how different markets respond to economic pressure. 

Should You Buy a Home During a Recession?

In the past, recessions can bring a buyer’s market. In a buyer’s market, there will be less competition and more houses. Buyers carry the power and are less likely to compete with multiple offers. Depending on the market and your resources, a recession may be a great time to invest in real estate, especially if rents continue to rise. Even if home prices stay steady, there may be some opportunity to find motivated sellers and distressed properties at a discount.

Additionally, it’s important to note that some industries thrive during recessions or remain relatively unaffected. In today’s environment, economies based on healthcare, biotech, or high-tech are booming. Real estate markets may well hold strong in these “recession-proof” areas.

Finally, the money supply is a critical metric. In the past several months, the Federal Reserve has created over $3 trillion to buy bonds and keep the banks solvent. When these funds circulate, asset prices tend to increase as more dollars chase a limited supply of goods.

Generally, real estate and stock prices increase when the money supply increases, making them great hedges against inflation. We have never seen a monetary stimulus quite like this, so I expect inflation in real estate and stocks over the coming years, even while unemployment is high. Unfortunately for renters, this also means rents will likely increase, and the affordable housing crisis will continue.

Real estate can be a haven for investors during tough economic times. Depending on your goals and tolerance for risk, recession-busting investments can protect your money, grow your money or do both. It is our mission at RealWealth to help as many people as we can acquire recession-proof and inflation-proof assets during these uncertain times.

What are your thoughts on real estate investing in a recession? Are you planning to build your rental portfolio, or stay on the sidelines to see what happens?

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