Bugs, are you saying that since homes prices are so out of whack with rental rates, that home prices must fall a lot, and get back down to rental rates, before rents can be affected? In that case, it will be many years before rents decline.

The rental market is dependent on wages, not on fancy loans. Even the housing market is dependent on the mortgage payment someone can make. Let’s say the median family can make a $2K rent. That would get them a $300K home with a traditional mortgage, but a $800K home with an exotic loan. But the family still only pays that $2K.

Now assume there are layoffs, out migration, and we are left with a reduced median income. Now people can only afford $1800/month in rent. Wouldn’t that reduce rents, regardless of the housing market? Whether there is a housing glut or shortage, the renter can only pay $1800. If he can’t find a unit for that price, he’ll move in with his parents or leave SD. The layoffs and out migration will put downward pressure on rents. The bad news is: there is no new industry in sight to save the SD job market. You may see a few jobs in port construction and Homeland Security, perhaps a few in biotech. But the massive 10K/year new jobs, which went into buying, remodeling, and furnishing our homes, will reverse.