As Visalia property managers, we’re often approached to explain different trends and shifts in the local rental market. Over the last few years, we’ve been busy keeping up. We had The Tenant Protection Act go into effect in 2020, and then we had the beginning of the COVID-19 pandemic and the corresponding eviction moratorium. Following that, we saw the real estate market lose its mind and a huge jump in home values and rental prices.
Before we could even catch our collective breath, here we are: wondering about a potential recession and noticing that it’s not as easy to attract and retain well-qualified tenants as it once was.
We’re talking about an overall rental market update for 2023 and 2024 in our blog today, but the issue we really want to focus on is one that a lot of owners have approached with: why are vacancies dragging on? Where are all the really good tenants with comfortable incomes and solid credit?
Shifting Rental Market in Visalia and California
When we talk about the rental market in Visalia and throughout California, we need to start with the sales market, because that will almost always impact how homes rent. In the home sales market, prices have begun to stabilize. Mortgage rates have, too, and even though they’re higher than most buyers would like them to be, they haven’t risen again recently.
This means that buyers have a bit more power when they’re negotiating purchase prices and closing terms.
Some economists worry about a recession. Others are convinced we may experience a slowdown, but not a total recession or crash.
What does this mean for the rental market? A few things.
For a while, we were seeing a spike in renters. Tenants were choosing to rent for longer and avoid buying because of the impossibly high home prices and the increase in interest rates and mortgage costs. Now, they may be feeling more comfortable making an offer on a home of their own. This could reduce some of the tenant pool we’ve grown accustomed to seeing.
We do not expect a complete plunge for the rest of 2023 and into 2024. While prices might continue to level off, they shouldn’t drop. Home values will remain intact, and both tenants and buyers have had some breathing room to decide what they want to do; buy or rent.
Longer Vacancies: The What + the Why
A lot of owners have asked us about why their vacancy rates are going up. A year ago, we could list a home for rent in Visalia and have multiple applicants within days. Now, we have to work a little harder with our marketing, we have to be a bit more flexible with our screening and the establishment of our standard rental criteria, and we have to be prepared for a home that’s unoccupied a bit longer than we’d like.
There are a couple of factors that seem to be contributing to these longer vacancy periods:
- Replacing Evicted Tenants
For more than a year during the pandemic, we could not evict tenants from homes when they were unable to pay rent. The eviction moratorium was lifted over a year ago, but programs were still in effect to help tenants who were unable to pay rent. Most of that assistance has dried up, and it’s common again for landlords to evict the tenants who cannot pay rent.
There was a lot we didn’t like about the state of the market and the feeling that our hands were tied during the COVID crisis. One thing we did enjoy, however, were dramatically low vacancy rates. Tenants were staying in place. They weren’t looking around, and there was not a lot we had to worry about in terms of turnover and vacancy.
Replacing the nonpaying tenants who have been evicted has not been as easy as a lot of owners expected.
- Increased Rents Limit What Tenants Can Afford
Rents have increased significantly over the last few years, and that plus the pinch of inflation is leaving tenants feeling cash-strapped. They’re deciding what they’re willing to spend on rent, and many of them are feeling like rents are too high. In Visalia and throughout the Central Valley, we’ve never endured a market where it was necessary to decrease anyone’s rent. That doesn’t mean it can’t happen; we’ve never increased rents at the rate we increased them over the last two or three years.
What You Can Do about Long Vacancies
Our strategy is to keep rents at the same level. We don’t want to drop what we’re asking, but we’re also sensitive to what a huge increase can do to our tenant placement and retention plans. The units that are currently vacant are experiencing an increase in days on market, and we want to get those homes rented to qualified tenants as soon as possible.
Normally, we require tenants to earn at least three times the monthly rent in order to be approved for one of our properties. Because rents are so high and everything is more expensive these days, we’ve dropped that requirement to 2.5 times the monthly rent in order to get a tenant approved. This has helped, but we do miss the days of taking for granted that we’d find very qualified renters with verifiable income to support their application.
We’re also focusing on tenant retention. With so much vacancy already a risk, we want to avoid it. A good tenant retention plan requires an excellent rental experience, open and transparent communication, responsive maintenance, and a reasonable rental increase and incentives at renewal time.
Where have all the exceptional tenants gone? We’re still looking for them.
At The Equity Group, we’re working hard to stay in front of this issue, and we’re always trying new ways to attract those good applicants. The rental market is shifting dramatically, and in California, we’re also navigating tenant protections and ongoing changes to the law.
As professional Visalia property managers, we’ve been required to adapt and innovate our systems, our processes, and our entire approach to how we lease, manage and maintain rental homes. The new market factors and forces have required us to invest in ongoing education and training. We have updated our own procedures on everything from screening to showings to turnovers.
We are utilizing new technologies, seeking out innovative best practices, and talking to other property management professionals who are also working their way through the changes in local rental markets and the entire industry.
If you’re not already working with a great Visalia property management team, it’s absolutely critical that you do so now. Let’s talk about how the market is affecting you and your investment properties. Contact us at The Equity Group.
