Nick Gerli: Rents in hard-hit cities like Austin, Las Vegas, and Phoenix are down 6% in the last year, with taxes, insurance, and interest costs rising. This could lead to forced selling in H2 2023.

Rents are dropping. 📉

Hardest-hit cities include Austin, Las Vegas, and Phoenix, where rental rates are down -6% over the last year.

Meanwhile – taxes, insurance, and interest costs are up significantly.

Cocktail that could mean forced selling in H2 2023. pic.twitter.com/nKiLmPRW0V

— Nick Gerli (@nickgerli1) July 4, 2023

“Landlords who purchased in the last 18 months are especially at risk.

Because they bought with a Mortgage Rate that was higher than the Cap Rate of their rental.

Meaning that they were losing money after paying their lender.”

2) So if rents decline further, some landlords will likely be forced to sell to avoid losses.

Especially as the near record 1.1 million apartments currently under construction/permitted get delivered in 2023-24.

That's going to put even more downward pressure on rents. pic.twitter.com/vKEzTIM77m

— Nick Gerli (@nickgerli1) July 4, 2023

“And rents going up isn’t happening right now. Which makes declining prices the most likely outcome.

Especially in a market like Las Vegas. Where the rental vacancy rate has surged all the way up to 8.7%.

Landlords there dealing with so much vacant rental inventory.”

4) And rents going up isn't happening right now. Which makes declining prices the most likely outcome.

Especially in a market like Las Vegas. Where the rental vacancy rate has surged all the way up to 8.7%.

Landlords there dealing with so much vacant rental inventory. pic.twitter.com/gRmwCrtZS0

— Nick Gerli (@nickgerli1) July 4, 2023

6) This is especially true in a city like Miami.

Where the typical household is now needing to spend over 50% of their gross income on rent.

Prior to the pandemic it was 38%. pic.twitter.com/w1updJolPh

— Nick Gerli (@nickgerli1) July 4, 2023

8) Ultimately downturn in rental market is signaling Deflationary Forces for Housing.

Which are likely to drag home prices down.

Read the rest of my thoughts over at the Reventure App blog.t.co/gQr13V0RPC

— Nick Gerli (@nickgerli1) July 4, 2023

10) One last thing…

Lots of people think landlords/investors buy in cash.

But usually that cash comes from some type of debt instrument. Whether it be an MBS or credit facility.

Usually at a rate similar to the 30-year fixed mortgage rate. Meaning around 6-7% right now.

— Nick Gerli (@nickgerli1) July 4, 2023