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What Happens to the Rental Market in a Recession?
Rental market in recessions: demand often rises as tighter credit keeps buyers renting. 2008: foreclosure flood caused 10-20% rent declines in Phoenix, Las Vegas, inland CA. 2020: urban rents fell 10-25%; suburban rents rose 5-15% (remote work). Standard recessions: vacancy rates rise modestly; rents sticky or slight decline. Own Luxury Homes® 12-Point Agent Integrity Audit™.
What Happens to the Rental Market in a Recession?
Rental markets and home sale markets often move in opposite directions during recessions. Here is what actually happens on both sides.
How Recessions Affect Rental Demand
Recessions often produce competing forces on rental demand: Forces that increase rental demand: • Job losses force some homeowners to sell and move to rentals • Economic uncertainty reduces household formation (young adults double up rather than signing new leases) • Tighter mortgage credit standards make homeownership harder to access, keeping potential first-time buyers in rentals • Some homeowners who lose jobs and cannot make mortgage payments become renters through foreclosure or voluntary sale Forces that decrease rental demand: • Household doubling-up reduces individual unit demand • Reduced household formation means fewer new renter households • Workers who lose jobs may move back to parents' home or leave expensive markets In most standard recessions, these forces roughly balance. Vacancy rates rise modestly but rents remain relatively sticky (landlords often prefer lower rents to vacancies rather than facing zero income).
The 2008 Exception: When Foreclosures Flooded the Rental Supply
The 2008 recession created a unique and unusual rental market dynamic in the hardest-hit markets. In Phoenix, Las Vegas, inland California, and Florida: massive numbers of homeowners lost their homes to foreclosure and became renters simultaneously. Many investment properties were also foreclosed, releasing additional rental units onto the market. The supply surge combined with weak employment demand produced rental rate declines of 10–20% in some submarkets. Simultaneously, large institutional investors (Invitation Homes, American Homes for Rent) began purchasing foreclosed single-family homes at distressed prices to rent them. This eventually stabilized rental markets as inventory was absorbed. The 2008 rental market outcome was specific to the conditions of a housing debt crash with mass foreclosure. In a standard recession, this scenario does not replicate because foreclosure volume is far lower.
The 2020 Split: Urban vs Suburban Rental Markets
The 2020 recession produced one of the most clearly bifurcated rental market outcomes in history: Urban core rental markets collapsed: Manhattan, San Francisco, and other dense urban centers saw vacancy rates spike and rents fall 10–25% as remote work-enabled tenants fled to suburban and rural locations. Urban landlords who had been charging maximum rents found units sitting vacant for months. Suburban and smaller city rental markets surged: the same remote work shift that emptied urban apartments filled suburban single-family rentals and smaller city apartments. Rents in suburbs of major metros rose 5–15% as demand exceeded supply. The lesson: rental market outcomes in recessions are highly localized and depend on why the recession is occurring and what behavioral changes accompany it.
“For landlords and real estate investors watching recession conditions, the most important variable is not the recession itself but what is driving it and what your specific market looks like. A medical office landlord in a healthcare-dominated market is almost entirely insulated from recession demand risk. A luxury urban apartment landlord is more exposed to demand-driven vacancies when economic uncertainty is high. The market composition matters more than the recession label.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
Do rents go down in a recession?
In most standard recessions, rents are sticky rather than dramatically falling. Landlords typically prefer small rent concessions to the income loss of vacancies. Vacancy rates may rise modestly. In severe recessions with mass foreclosures (2008 model), rents can fall meaningfully in foreclosure-flooded markets as displaced homeowners become renters while investors release foreclosed rental units simultaneously. In the 2020 recession, urban rents fell significantly while suburban rents rose — the split was driven by remote work rather than traditional recession dynamics.
Is real estate investment safer during a recession?
Relative to other asset classes, real estate has historically shown more resilience in recessions. The stock market fell 50% in the 2001 recession while home prices rose 7%. In 2008, real estate fell dramatically, but that was because housing debt caused the recession. Essential-use real estate (single-family rentals, necessity-based retail, healthcare facilities) tends to outperform speculative uses (office, hospitality, luxury retail) in recessions. Income-generating real estate with stable tenants and conservative leverage typically weathers standard recessions better than equities.
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— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)