[quote=jpinpb]The question is this: Will rents decline? That will make the ratio change. There’s a thread here in Piggs OC – rents in the crapper.

It of course makes sense that if you can buy less than rent, then buy. Not there on the coast yet. BUT housing is reeally low in Temecula. And yet declines continue there. So are the rents declining right along w/homes prices there? I’m sure by now the cost to rent must be the same as to buy over in Temecula. And you would think you’d start to see an increase in prices. Not so. [/quote]

This is a very good point. Rents probably will fall in the short term (driven by both economic conditions and the oversupply of housing). However, I don’t know how far it will fall – rents didn’t have nearly the amount of appreciation (they’ve basically increased at or near the rate of inflation). Remember as well, for every family kicked out by foreclosure, one more set of renters is added to the pool. I don’t think rent pressure to the downward side will be a hugely significant effect (unless, of course, we see a Great Depression scenario, which I’m betting against). Rents simply weren’t fundamentally in a bubble.

The problem with areas such as Temecula right now is that a lot of their building was driven to supply people priced out of the primary job locations in the area (like SD or OC) and were willing to commute. Now that primary job supply places are dropping drastically in price, there’s less pressure to push the commute up so far – so their demand is fairly low. If they were closer to major job centers, I’d think that they would in fact be already well into recovery. Just as a side note, TV homeowners who were foreclosed won’t be likely to be renting in TV unless that’s where their job was – they’d rent closer to their job – for a lot of them, that will mean taking up more rental stock in San Diego, O.C. or Riverside.