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Almost never. Real estate prices going down does not affect the costs to the landlord (assuming it is an investment property), their mortgage expenses are fixed

Almost never. Real estate prices going down does not affect the costs to the landlord (assuming it is an investment property), their mortgage expenses are fixed. If they don’t have a mortgage, it’s still unlikely, because having a lower property value doesn’t translate to pressuring them to find renters more easily by lowering the rent.

shiftpgdn 4y ago
Supply in the number of rental units available is what drives down prices. This is extremely obvious to anyone who visits Dallas or Houston Texas where developers are allowed to build as much as they want vs the bay area where supply is extremely restricted.
- jeffbee 4y ago
  I thought what the OP was suggesting was if people are not buying houses then they are renting them, which may put pressure on the supply of rental properties which are not the same set of homes. In the short term a given house does not instantly transition from for-sale to for-rent.
vasco 4y ago
> their mortgage expenses are fixed. If they don’t have a mortgage The article is about the US but if it's interesting, there are quite a few countries around the world where variable rate mortgages (for example following Euribor) are the default, so in this environment their payments would've actually gone up (with higher interest rates), at the same time as the property value would go down.
- causi 4y ago
  where variable rate mortgages (for example following Euribor) are the default That seems so reckless. Why would anyone risk the largest part of their budget spiraling out of control at the whim of the market?
  - klodolph 4y ago
    I mean, welcome to 2008. https://en.wikipedia.org/wiki/Subprime_mortgage_crisis https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
  - Ancalagon 4y ago
    Fixed-rate mortgages are actually an incredibly bad deal for the lender when rates are low like they were last year. The lender ends up holding debt that - in 30 years - is worth hardly more than what they lent out.
  - digdugdirk 4y ago
    To take a different perspective on this - why would it make sense to subsidize the purchase of larger than necessary homes because they're able to lock in low rates for a lifetime? It would make far more sense if homeowners had more skin in the game, and had to make rational choices about the size and location of the home they purchased.
  - AlexandrB 4y ago
    Mortgages with a rate fixed for >5 years are not really widely available in Canada (for example). So it's not like you have a choice. From another perspective, 25 year fixed mortgages seem like a subsidy to homebuyers that protects them from the market. Who ends up paying the losses on a low rate 25 year fixed mortgage when central bank rates go up?
    - owisd 4y ago
      Traders in interest rate swaps
    - aftbit 4y ago
      How does this impact home prices and the affordability of homes? If I bought my current (US) home on a 5 year mortgage, my payment would have been above $12,000 per month, which seems pretty unapproachable for the majority of buyers. Or is it a 5 year fixed / 25 year variable deal? How does refinancing work under those circumstances? Certainly a 30 year fixed mortgage is an amazing deal for a homeowner. If the rates go up, you are protected. If they go down, you can refinance into the lower rates, and likely at a better LTV ratio (as you've paid more equity into your home). At this point, with my interest rate, I am better off putting excess cash into a bank account or Treasury bonds than paying my loan faster.
nwah1 4y ago
You are thinking in the short run. Rental contracts and mortgage contracts are difficult to extricate yourself from, and make prices "sticky." Demand cannot immediately respond to market changes. But in the long run, it is based on your alternatives. If prices are falling, that means lots of people are able to get mortgages more cheaply. More people getting mortgages means less people renting... which means less demand, and lower rental prices. If a landlord is locked into a 30 year mortgage at one rate, and feels that the "have" to rent a certain price, that doesn't mean that this landlord will be able to find someone willing to pay that price.
- maxfurman 4y ago
  Sort of - higher interest rates make your monthly mortgage payments higher, so if there's a fixed monthly payment you can afford, higher interest might offset the lower price and actually make it harder for you to buy in. This of course depends on how much the house prices and interest rates change and how much you have available for a down payment.
  - nwah1 4y ago
    That's true, and beyond the simple observation that the two options (mortgages and renting) will maintain a kind of general equilibrium, there is a more complicated issue called the Law of Rent which shows that land value is based on the productivity that is possible at that location, over and above the alternatives. It is for this reason that what you can afford is key. So land prices respond to the amount of disposable income that the potential buyers have. You are right that the affordability on the mortgage side includes interest rates, and it is possible for price changes to purely be making up the difference there. But it could also be a broader phenomenon. If rental prices are falling, it is an indication that prospective buyers and tenants have less ability to afford that land, or that the location provides less value. Either way, a bad sign. But since land is so essential, it responds in such a way that no matter how prosperous a society becomes, it will always adjust to make itself about as difficult to obtain as always. The number of labor hours needed to buy a computer has fallen dramatically. But land values just kind of keep pace with the progress (or regression) of civilization. People who have ownership over the natural world thus get to claim a growing share of the progress of civilization, purely by owning. Even if they only perform idle speculation.
makmanalp 4y ago
> Real estate prices going down does not affect the costs to the landlord (assuming it is an investment property), their mortgage expenses are fixed Silly question but the fact that their mortgage expenses are fixed works to their benefit unless they bought at the peak, right? Talking specifically about the big US city I live in - most landlords who already owned property since forever still jacked their prices up many hundreds of dollars in the past couple years because the market would bear it, not necessarily because they needed it to cover costs. I'd imagine that the renters paying the largest rent (a few thousand, let's say) would be the likeliest defectors to buying a house. So buyers in the the top end of the market collapse, and those landlords begrudgingly start lowering prices - they can still make a profit. Maybe the low end stays the same. I have zero understanding of the economics involved here, just pontificating.
- nerdponx 4y ago
  I think this analysis is generally correct, but we already saw it happen during Covid, and prices in cities didn't really drop during that time, they just flattened. There seems to be an equilibrium in which landlords are preferring to hold out and leave units vacant for a little longer, knowing that they will make more money in the long run if prices don't drop. this has been ongoing in commercial real estate for a long time, so it's not surprising that the same would happen in residential.
- deleted 4y ago
  [deleted]
jameshart 4y ago
In fact real estate prices going down can be good news for landlords as it gives them paper losses they can exploit for tax advantages.
- thunky 4y ago
  Landlords are in business to make money, not lose it.
  - jameshart 4y ago
    Landlords can hold property portfolios through downturns - they aren’t forced to realize losses, like, say a bank whose depositors are asking for their cash back.
cragfar 4y ago
New landlords can charge less since their purchase price will be lower. It hasn't happened in a while, but it can.
- Our_Benefactors 4y ago
  Their purchase price may be lower but their monthly payment is unlikely to be lower due to interest rates.
lxm 4y ago
> Almost never. Apartment rents fall as new supply hits market https://news.ycombinator.com/item?id=34976493 https://news.ycombinator.com/item?id=34976493

shiftpgdn 4y ago

Supply in the number of rental units available is what drives down prices. This is extremely obvious to anyone who visits Dallas or Houston Texas where developers are allowed to build as much as they want vs the bay area where supply is extremely restricted.

jeffbee 4y ago
I thought what the OP was suggesting was if people are not buying houses then they are renting them, which may put pressure on the supply of rental properties which are not the same set of homes. In the short term a given house does not instantly transition from for-sale to for-rent.

vasco 4y ago

> their mortgage expenses are fixed. If they don’t have a mortgage The article is about the US but if it's interesting, there are quite a few countries around the world where variable rate mortgages (for example following Euribor) are the default, so in this environment their payments would've actually gone up (with higher interest rates), at the same time as the property value would go down.

causi 4y ago
where variable rate mortgages (for example following Euribor) are the default That seems so reckless. Why would anyone risk the largest part of their budget spiraling out of control at the whim of the market?
- klodolph 4y ago
  I mean, welcome to 2008. https://en.wikipedia.org/wiki/Subprime_mortgage_crisis https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
- Ancalagon 4y ago
  Fixed-rate mortgages are actually an incredibly bad deal for the lender when rates are low like they were last year. The lender ends up holding debt that - in 30 years - is worth hardly more than what they lent out.
- digdugdirk 4y ago
  To take a different perspective on this - why would it make sense to subsidize the purchase of larger than necessary homes because they're able to lock in low rates for a lifetime? It would make far more sense if homeowners had more skin in the game, and had to make rational choices about the size and location of the home they purchased.
- AlexandrB 4y ago
  Mortgages with a rate fixed for >5 years are not really widely available in Canada (for example). So it's not like you have a choice. From another perspective, 25 year fixed mortgages seem like a subsidy to homebuyers that protects them from the market. Who ends up paying the losses on a low rate 25 year fixed mortgage when central bank rates go up?
  - owisd 4y ago
    Traders in interest rate swaps
  - aftbit 4y ago
    How does this impact home prices and the affordability of homes? If I bought my current (US) home on a 5 year mortgage, my payment would have been above $12,000 per month, which seems pretty unapproachable for the majority of buyers. Or is it a 5 year fixed / 25 year variable deal? How does refinancing work under those circumstances? Certainly a 30 year fixed mortgage is an amazing deal for a homeowner. If the rates go up, you are protected. If they go down, you can refinance into the lower rates, and likely at a better LTV ratio (as you've paid more equity into your home). At this point, with my interest rate, I am better off putting excess cash into a bank account or Treasury bonds than paying my loan faster.

nwah1 4y ago

You are thinking in the short run. Rental contracts and mortgage contracts are difficult to extricate yourself from, and make prices "sticky." Demand cannot immediately respond to market changes. But in the long run, it is based on your alternatives. If prices are falling, that means lots of people are able to get mortgages more cheaply. More people getting mortgages means less people renting... which means less demand, and lower rental prices. If a landlord is locked into a 30 year mortgage at one rate, and feels that the "have" to rent a certain price, that doesn't mean that this landlord will be able to find someone willing to pay that price.

maxfurman 4y ago
Sort of - higher interest rates make your monthly mortgage payments higher, so if there's a fixed monthly payment you can afford, higher interest might offset the lower price and actually make it harder for you to buy in. This of course depends on how much the house prices and interest rates change and how much you have available for a down payment.
- nwah1 4y ago
  That's true, and beyond the simple observation that the two options (mortgages and renting) will maintain a kind of general equilibrium, there is a more complicated issue called the Law of Rent which shows that land value is based on the productivity that is possible at that location, over and above the alternatives. It is for this reason that what you can afford is key. So land prices respond to the amount of disposable income that the potential buyers have. You are right that the affordability on the mortgage side includes interest rates, and it is possible for price changes to purely be making up the difference there. But it could also be a broader phenomenon. If rental prices are falling, it is an indication that prospective buyers and tenants have less ability to afford that land, or that the location provides less value. Either way, a bad sign. But since land is so essential, it responds in such a way that no matter how prosperous a society becomes, it will always adjust to make itself about as difficult to obtain as always. The number of labor hours needed to buy a computer has fallen dramatically. But land values just kind of keep pace with the progress (or regression) of civilization. People who have ownership over the natural world thus get to claim a growing share of the progress of civilization, purely by owning. Even if they only perform idle speculation.

makmanalp 4y ago

> Real estate prices going down does not affect the costs to the landlord (assuming it is an investment property), their mortgage expenses are fixed Silly question but the fact that their mortgage expenses are fixed works to their benefit unless they bought at the peak, right? Talking specifically about the big US city I live in - most landlords who already owned property since forever still jacked their prices up many hundreds of dollars in the past couple years because the market would bear it, not necessarily because they needed it to cover costs. I'd imagine that the renters paying the largest rent (a few thousand, let's say) would be the likeliest defectors to buying a house. So buyers in the the top end of the market collapse, and those landlords begrudgingly start lowering prices - they can still make a profit. Maybe the low end stays the same. I have zero understanding of the economics involved here, just pontificating.

nerdponx 4y ago
I think this analysis is generally correct, but we already saw it happen during Covid, and prices in cities didn't really drop during that time, they just flattened. There seems to be an equilibrium in which landlords are preferring to hold out and leave units vacant for a little longer, knowing that they will make more money in the long run if prices don't drop. this has been ongoing in commercial real estate for a long time, so it's not surprising that the same would happen in residential.
deleted 4y ago
[deleted]

jameshart 4y ago

In fact real estate prices going down can be good news for landlords as it gives them paper losses they can exploit for tax advantages.

thunky 4y ago
Landlords are in business to make money, not lose it.
- jameshart 4y ago
  Landlords can hold property portfolios through downturns - they aren’t forced to realize losses, like, say a bank whose depositors are asking for their cash back.

cragfar 4y ago

New landlords can charge less since their purchase price will be lower. It hasn't happened in a while, but it can.

Our_Benefactors 4y ago
Their purchase price may be lower but their monthly payment is unlikely to be lower due to interest rates.

lxm 4y ago

> Almost never. Apartment rents fall as new supply hits market https://news.ycombinator.com/item?id=34976493 https://news.ycombinator.com/item?id=34976493