San Diego Housing Bubble News and Analysis

Most of us predicted this would happen. No surprise here.

Rents will slump right along house prices.

"It is probably too soon to see from our database what effect the sub-prime fiasco has had on sales of apartment properties. And of course one has difficulty, from a distance, knowing how many proposed sales may have fallen through for lack of available financing."

I thought it was interesting they mention the "subp-rime fiasco". This is a realestate information organization of some sort. I am not exactly sure their whole purpose, but, they measure rental facts and disseminate information for landlords and such.

From looking at Craig's List and and Rentometer, it looks to me like rents are actually rising in San Diego. At least the areas in which I am interested. The article above mentions that the occupancy rate in San Diego is one of the few that is still high, so perhaps my (somewhat unscientific) scanning of rental opportunities is accurate.

Does anyone see signs of falling rents here?

What area of SD are you looking in? I am looking for 4-5BR in Carmel Valley.

I could see a short term upward pressure on rents as foreclosed houses stand vacant and are not offered for rent.

Longer term, though, as local recession eats in to affordability, rents will decline as demand decreases due to falling employment. If nothing else, reduced construction jobs pull down the local economy. Reduced demand means reduced willingness to pay rents.

As the local economy contracts there ends up being a net exodus. This does not mean that people everywhere are packing up their bags; rather, people naturally leaving are replaced a little less vigorously. Decreased population applies significant downward pressure on rents.

Unfortunately, I don't foresee rent falling here in SD anytime soon. I oversee a portfolio of over 2,000 units throughout SD in large (100+) apartment communities. This time of year is typically slow for us, but not this year. All our communities are experiencing occupancy levels over 95%, many over 97%. An interesting thing we did change in our rental criteria last year is the acceptance of foreclosure applicants (they were too numerous to ignore), provided they have a cosigner or other acceptable proof of payment ability. So far as we have tracked, none of these renters have defaulted on their rental payments. It seems going from a $4,000 a month mortgage to $1,600 or so montly rent is allowing them to keep up timely payments. Interesting how when you stay within your income levels how easy it is to pay your bills on time. Perhaps this has helped our occupancy levels or something else is transpiring, but I've found it an interesting thing for us to track. We were all expecting the failed condo conversions to take a bite out of our numbers, but we are finding that renters do not want to live in a ghost of a community where the $$$ does not exist to pay for the services and amenities they were expecting. Since there are so many defaults, HOA fees are not being paid and the associations cannot pay the bills to keep up with security, heated pools, landscape, etc... Your typical class A rental properties can still offer those benefits.

Facts from the field: I just placed new tenants in my Tierrasanta property.
Ask any landlord, renting out property during the holidays is VERY difficult. In the past I would advertise and maybe get 2 interested parties per week. However this time I received tremendous interest from my Craigslist ad. It still took a little time to get the property rented (because small house?). So what has changed in San Diego is that there are a lot of people looking to rent instead of buying a house, even during the usually slow holiday period. If I had this property turning over this summer, I predict I could get 10% more rent due to the demand for it.

From www.nctimes.com

Apartment rents edge up amid higher occupancy

By: CHRIS BAGLEY - Staff Writer
Many new tenants arrive with foreclosure on records, a potential hurdle

Apartment rents in North County and throughout the Western United States climbed modestly last year while home prices crumbled in many markets, a contrast apparently driven by the growing number of people who don't want to or can't qualify to buy a house or condominium.

Meanwhile, vacancies are becoming somewhat scarcer as more families lose their homes to foreclosure, according to rental managers and a report that was published Thursday by RealFacts, a Bay Area research firm.

Occupancy rates in San Diego County have crept up by 1 percentage point over the last year, to 95 percent in the October-December period, RealFacts reported.

The average monthly rent in San Diego County rose by 4 percent last year to $1,370 in the fourth quarter. One-bedroom, one-bath apartments rented for an average of $1,202 a month, while three-bedroom, two-bath apartments rented for $1,824 on average, according to RealFacts.

Comparably sized apartments in Riverside County rented for $993 and $1,533. Average rents in that market increased by a modest 1.3 percent, to $1,150.

Record numbers of foreclosures to the north have begun to fill empty apartments, a large number of which were constructed in 2005 and 2006. About 91 percent of the apartments in the county were occupied in the fourth quarter of last year, compared with 89 percent in the fourth quarter of 2006, RealFacts reported.

That trend will probably accelerate, said Christian Davis, who oversees more than 1,000 apartment units in Southwestern Riverside County and about 200 in North San Diego County.

Owners who lost their homes after failing to make mortgage payments have already occupied most of the rental houses where individual landlords sometimes scrutinize credit histories less stringently than the corporate owners of apartment complexes, said Davis, vice president of operations for Gables Residential's San Diego region.

"We've literally cut our vacancy rate in half," Davis said.

Davis said the vanishing vacancies could allow owners more leverage by early 2009.

For now, workers' wages and other prices have roughly kept pace with apartment rents in both San Diego County and Riverside County over the last year, based on current data from the U.S. Department of Labor: San Diego County recorded annual inflation of 2.3 percent in the first half of 2007, while average weekly paychecks in the region were rising by about 3 percent annually in the first three months of the year.

Increases in monthly rents were much larger in several urban areas, including a whopping 10.8 percent climb in Silicon Valley, to an average of $1,647.

While the reasons for the higher rents in most areas of California are difficult to pinpoint, a sharp downturn in the number of people buying homes appears to be a contributing factor.

As lenders have become more cautious while wrestling with huge losses from past loans to borrowers with blemished credit problems, fewer people can qualify for the financing to buy the home.

And anecdotal evidence suggests prospective buyers who can still get a mortgage are holding off in hopes that they can get an ever better deal if real estate prices continue to decline as many economists anticipate.

Fewer home buyers typically translates into more people trying to lease their living space ---- a supply-and-demand dynamic that works in the favor of apartment landlords.

The abundance of high-paying jobs in high-tech havens like Silicon Valley and Seattle also are propelling rents as more people move into those markets to work.

The West's least-expensive apartment rental market remained Tucson, Ariz., where the monthly cost edged up 2.9 percent to $665.

Davis said Gables and other apartment companies across the region are changing the way they evaluate applicants from foreclosure situations.

A foreclosure had been a very heavy black mark, but runaway mortgage payments got the better of many people with otherwise solid credit, Davis said. The challenge is to distinguish such renters from those who had borrowed on their homes irresponsibly, he said.

"It's forcing us and our competitors to go back to our procedures and say, 'How do you adjust this?' " he said. "We're in the business of giving people homes, but we're not in the business of doing it for free."

People may be asking for more in rent, but I'm seeing what indicates higher vacancy rates in my area.

I think CA population is going to decline given the economy, job cuts, cost of living, over crowding, traffic, despite falling home prices.

Not everyone wants to live here.

I found a townhouse property I liked that would just about cash flow with 10% down and a 30 year fixed loan in a decent area. I ran an ad for it at the break even rent price to test my hypothesis and got about 20 inquiries in 3 days.

In my neck of the woods 2k gets you what 1800 did last year, if you are renting a sfr. In my travels, I notice I am only able to find 1 house vacant(that is up for rent) and this maybe a foreclosure situation.

I believe what comes around goes around, and if it's happening elsewhere........CA is just down the pike.........and it's always worse when it catches up to us.............

What area of SD are you looking in? I am looking for 4-5BR in Carmel Valley.

I'm looking (more, perusing, since I'm relatively happy in my current rental) at 3-4 bedrooms in Rancho Penasquitos. It has occurred to me that the recent fires may have upped the demand for rentals, but from the anecdotal comments and other info in this thread it seems bigger than that.

I question the increase in demand from bailing homeowners, though, since those houses are still part of the overall supply.

Lag

Actually the demand from the bailing homeowners makes a lot of sense. Even when they leave their homes and move into an apartment, you can't just put that empty home on the rental inventory list right away. There will be a lag. For various reasons, the empty houses aren't put into use immediately. The houses will remain empty for several months, until the banks can unload them and an investor or buyer will put them back to use (at an appropriate price). Certainly the banks are not going to go into the rental business.

Until this (the active conversion of foreclosed homes to being used as rentals or homes) happens, you won't see rent going down. I've talked to a few investors and they're trying to do some deals, but I don't see a whole lot of activity otherwise. Streamlining the foreclosure to rental process could lower the rents, but I don't see that happening.

This lag is why I've always found fault with the idea that the large foreclosures will have an immediate impact on lowering rent here in San Diego.

I agree that there is a lag.

Wait for a few months and you'll see the asking rents drop from this wishful thinking asking amounts.

I know for a fact that the Downtown rental market is dropping. Properties have been sitting more than 2 months now since I've been helping a friend find a rental.

Just like buying, when renting, patience is key. Never rent the first decent place you find. You need to look at the classifieds for at least 2 months, and visit the places you're interested in, before you get an idea of the market.

If you miss out on a place, don't sweat it, there'll be plenty of other rentals.

The more the people who walk out their homes, the more renters are there in the market. Thus the pool of renter will get bigger. At the same time, houses that were originally put to rental market by desperate owners will become hooked on the foreclosure procedure that will take a long time before they can be used as rental units. Thus the size of the rental market will be sort of steady. In the short term, rent will increase in SD if more homeowners that are under. That is my guess.

Surveyour: Indeed banks do recycle their non-functioning assets to rental units when they are desperate.

What I've seen in Ventura county is that rent for rooms of a house are actually up. My guess would be wanna be landlords having to meet mortgage payments. However, rents for actual apartments seem to be down from even 7 months ago. Don't know if there is a similar trend in SD.

It would make sense that rentals would be in more demand as more people lose their houses to foreclosure. They have to live somewhere, and they can't all move in with relatives. The vacant foreclosed properties will sit vacant for a while until the bank decides what to do with them, then they will be for sale, not for rent. Rent's are definitely up here in my area in eastern LA county/San Gabriel Valley. And I don't see many vacancies.