What impact will this recession have on rents? Will rents go down? We took a look at two great charts from The Wall Street Journal to answer these questions.
This first chart depicts the Consumer Price Index (CPI). Rent and housing expenses are one of the largest components of overall inflation. In the chart above, you can see the inflation of rent had been close to 4% for the last couple of years. Recently, in the last 6 months or so, it has declined to only about a 2.5% growth rate. As a result, rents are still going up, just not as quickly.
What can we learn from previous recessions?
This second chart gives us some good clues as to what we can learn from previous recessions. The red line on this chart represents the recession we are currently in. You can see that the acceleration in rents has slowed down faster than in the last four recessions that were studied. The pink dashed line represents the most recent recession before this (2007-2009). This was a pretty decent sized recession. The chart shows that the pace of the slow down in rents during this recession was more gradual than the current recession. At the very worst part of the 2007-2009 recession, about 30 days in, rent prices leveled out to where they were exactly flat. They did not go up at all. There was no time during this most recent recession, or the three recessions before, where rent growth turned negative.
What will happen this time around?
We think that this recession will follow similar patterns as the past four recessions. We will probably see rent growth inflation slow down to around 1.5% from the 4% it has been at. It should continue to be flat for a year or two and then it will start to edge back up again. Overall, we do not expect to see any major discounts in rent any time soon.