why does the real estate market crash with the economy, if landlords and mortgage companies dont usually kick out people as soon as they are not able to pay their rent/mortgage because of the market crash?
In: Economics
Real estate prices act as a function of the economic health as a show of supply and demand.
If everyone has a job, there is money to pay rent and landlords raise their rents until the market caps out at saturation pricing. When rent is high, developers build more units to take advantage of the high rent scenario. More units can bring in more rent. As long as they are full. Supply is low, demand is high, prices go up.
If people start losing their jobs, demand slows. Upward mobility slows. People downsize to reduce expenses. Supply is now high, demand goes down, prices go down too. Empty or a glut of empty units drives down the price. As a landlord you can’t negotiate or leverage a high price when there is a dozen empty units in the building.
Empty units and poorly performing investment properties lower property values because they become cash flow negative until the value equals the new lower income potential.
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