Absent rent control, rents are a true indication of supply and demand, and they are also closely correlated to income. But what if there’s another phenomena going on here? Recall how those in California drove up housing prices in neighboring states over the last few years, effectively overpaying for homes because they were relatively cheap compared to Calif. They saw their homes appreciate wildly, and then borrowed against their homes (it’s free money, after all!) to buy in Arizona, Nevada, etc.
Perhaps now we’re seeing the same dynamic with rents, that many who have sold over the last couple of years, liberating their equity, are now sitting on a pile of money and can easily afford to pay more rent, and in many cases are overpaying. Do we have any idea how many people have sold in the last couple of years and are now renting? Anecdotally, I know that when we sold in July of 2004 and then rented, I didn’t know anyone who had done the same thing. But now, I know several personally, and see many posting all over the place on blogs.
And could it be that a significant portion of the record high inventory that is for sale right now is non-occupied, thus taking out potential units from the rental pool and reducing supply? Eventually that supply will increase.
If we follow a similar pattern to the correction of the early/mid-90’s, I think we’ll see lots of people leave the San Diego area over the next 4 to 5 years, thus reducing demand and ultimately keeping rents from rising too much. And if we see the recession and job losses that most of us here believe is coming, then many will not be able to afford as much rent.
If wages aren’t rising (they haven’t much lately) rents can only go so far.
