If you’ve been following our column, you’ll know that we’ve been writing about housing inventory levels falling since April. After more research we learned about rentals affecting housing resale inventory supply.

According to a leading rental agent, rent prices have been down 35% in the last three months. He mentioned there are 176 single family homes in Cape Coral alone that came on the rental market.  Because he has conversations with his clients, I asked him what is driving the rush to rent their homes.

Rentals Affecting Housing Resale Inventory Supply

The rental agent said many have tried to sell their home and could not, or just do not like the resale prices today, so they’ve decided to rent instead. This caused a rush of rental homes to enter the market, and some are still asking for 3 month ago rental prices.

Like the resale market, rentals are price sensitive. Whether you are renting or selling, you must price your home according to market conditions. For those that choose the correct rental price, those homes are rented within four to six weeks. For those owners that overprice their rental, it’s taking three to four months to rent their home. Presumably it takes longer for the owner to realize they are overpriced, and they eventually reduce rent until it rents. Our conversation didn’t get that far, but why else would it rent for more down the road?

Rent Vs Sell

There are three reasons why a homeowner would rent versus selling. First, they emotionally want what their home used to be worth and decide to wait until the market recovers to that point. Secondly, they may owe more on the home and need to wait until market recovers to pay off the loan. Third, they may decide it’s a good investment and would like to keep it. Perhaps they have a low interest rate and can afford to keep it until rates fall again.

We may never see rates get below 3% again. If they do approach sub 4% it probably means the economy isn’t doing well and the Fed is trying to pump the economy. If this scenario occurs, home prices wouldn’t be doing well.

Economic Projections

We just sat through an economic projection of three possible scenarios. The first was no recession, the second scenario was a normal recession, and the last scenario was a banking recession. Let’s pray for no recession or or a mild one because the outlook for home prices and sales time isn’t pretty if we hit a normal recession or banking recession.

Buyers and sellers should prepare for rates to come down, but it will take awhile, and real estate will lag while they do. Recovery will be slow.  If we enter a normal recession, home prices could be stalled or fall for 3+ years. And if we enter a banking recession, unemployment would rise dramatically and the economy could get ugly. We last saw this scenario in the Great Recession and savings and loan crisis.

The difference is today our country is in so much more debt than we were in 2006. Latest odds have the US entering a recession at about 70%. The definition of a recession is negative growth for two straight quarters, so we won’t know we’re in one until 6 months in.

Bottom Line

Real estate is moving, if it’s priced correctly. Those rentals will come back on the resale market one day, adding to inventory. For now, it might be a good time to sell while inventory is down. Of course, when all those rentals come back on the market, interest rates might be lower and maybe there will be more buyer demand to offset the increased supply.

We’ll keep watching the market for you. Always call Sande or Brett Ellis 239-310-6500 with your real estate questions or visit www.swflhomevalues.com to get your home’s price.

Good luck, and Happy Home Selling!

Ellis Team Weekend Open Houses

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