I will be out of town this week, so you all will be able to enjoy a few days without being assailed by charts and graphs. First, let’s wrap up the series on San Diego rents.
A couple months back, I wrote a blog entry maintaining that San Diego home prices in aggregate had finally become "reasonable" in comparison to local incomes and rents. Several readers replied by arguing that while the ratio of home prices to rents might be back in the middle of its historical range, rents themselves had become unsustainably high as a result of bubble-era economic distortions and were likely to fall substantially.
Now underway is the fourth in a series of blog entries in which I’ve tried to determine whether or not San Diego rents became unmoored from their fundamental underpinnings as the housing bubble took place. The first installment compared rent levels with local per capita income; the second measured rents against median household income. Both comparisons indicated that rents were pretty well in line with incomes after all. The third entry compared San Diego’s housing availability to its population and determined that, as of 2008 anyway, the rent to income ratio was quite reasonable considering the number of San Diegans vying for the region’s supply of homes.
The purpose of this exercise is to determine whether the housing bubble somehow caused rents to become unsustainably expensive. If we find that 2008 rents were in line with their fundamentals, that doesn’t mean that rent prices couldn’t drop in the future due to a recession-induced deterioration of those fundamentals. But this is a different question from whether rents were overpriced to begin with.
That latter question is the one I’ve been trying to answer, and so far, the answer has been that as of last year, rents appeared reasonable in comparison to San Diego incomes. The last topic I want to look at is to what extent incomes themselves might have been distorted by the housing bubble.
This is one big reason
This is one big reason investors are buying property and renting it out. Rents tend to be sticky. But, rental homes that dont go up in value for a few years start to get tiresome for the landlord to own and manage. And appreciation is the end goal for most. Especially since cash flows tend to be nuetral at best when all expenses are considered over a few years or more.
Add a little depreciation to the mix and it gets uglier, quickly.
I can’t find the exact
I can’t find the exact article, which ran in the Union-Tribune (or maybe the North County times) a year or so ago… but it sliced the renting data a different way. Based on surveys in the county, it showed a bar chart which indicated that some huge proportions of those who rent in the county, pay way over 30%; some upwards of 50% of their income on rent. As I recall it was something like 45% paid more than 30%, and 10% or 20% were paying upwards of 50%.
A couple of similar articles which I did find, covering the 2006-2007 timeframe:
http://www.signonsandiego.com/uniontrib/20070912/news_1n12census.html
http://www.signonsandiego.com/uniontrib/20080130/news_1n30housing.html
http://www.signonsandiego.com/uniontrib/20070110/news_1b10paycheck.html
From the first article:
From the second article:
From the third article:
CricketOnTheHearth wrote:I
[quote=CricketOnTheHearth]I can’t find the exact article, which ran in the Union-Tribune (or maybe the North County times) a year or so ago… but it sliced the renting data a different way. Based on surveys in the county, it showed a bar chart which indicated that some huge proportions of those who rent in the county, pay way over 30%; some upwards of 50% of their income on rent. As I recall it was something like 45% paid more than 30%, and 10% or 20% were paying upwards of 50%.
[/quote]
If you look back at Rich’s previous articles on this though, you’ll find this isn’t actually anything new. San Diego has simply been a historically expensive place to live, whether renting or owning. Rich’s charts in his previous article show that the median rent to median per capita income in San Diego has been pretty consistently near 50% since the 70’s (as far back as his charts go).
I live in UTC and rents are
I live in UTC and rents are falling quite substantially. Looked at a 2BR in my complex three years ago: $2100. Went with a 1BR at the time, and am looking to move up to the 2BR. Was told by the leasing staff that current when my lease is up, I can expect to pay $1800-1900. A friend of mine had a similar experience at his complex a couple blocks over.
A couple of factors keeping
A couple of factors keeping rents from falling much further are:
1. A kind of “pent up demand” from the much-cited doubling up going on now.
2. The low rate of new housing creation in recent years and for the forseeable future.
I’m surprised that the number
I’m surprised that the number of construction workers are still above the trend line. They were building 2M houses each year in the peak time, now they are only building 500K houses. So what are the construction workers doing now??
Can we assume that rents are
Can we assume that rents are relatively “normal” when healthcare costs, college costs, food costs, and energy are up so much? It seems like the prices of many other things were also rising faster than official inflation, which leaves less money for housing (including rents). The cost of our “wants” are generally down, but the cost of our “needs” have been rising sharply.
Also, past rents were determined when people were more likely to have employer-paid healthcare and defined-benefit pension plans. As we move to a system where more of that burden is placed on the individual, wouldn’t it make sense that we have far less money to spend on housing costs and other expenses?
As always, thanks for your reseach and insight, Rich. It’s always fun to see whether or not the numbers agree with our gut feelings. Perhaps many of us here have a false sense of what things should cost. As long as others are willing to pay more for something, our personal preferences don’t really mean anything, I suppose. We’re all forced to go broke together when the least responsible are the ones who affect pricing the most.
Isn’t this is the exact same
Isn’t this is the exact same argument as when house prices were supposedly going to remain permanently high?
As house prices continue to fall, jobs continue to decline, incomes will follow & then so will rents. All these knife-catching “investors” are in for a rude awakening not only on house prices but also on rents.
vfsv wrote:Isn’t this is the
[quote=vfsv]Isn’t this is the exact same argument as when house prices were supposedly going to remain permanently high?
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Is this post a joke?
I’m thinking it must be a joke.