One Step Ahead – Piggington's Econo-Almanac

This topic has 38 replies, 19 voices, and was last updated 17 years, 10 months ago by Raybyrnes.

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January 6, 2007 at 11:17 PM #8175

Raybyrnes
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If one were to subscibe to belief that buying right now is bad and renting is good then would this very concept suggest that there should be a run on rentals therefore forcing up prices and reducing supply. Conversely this would mean that with such a glut of homes on the market prices should be bottoming. I will compare it to buying a used car. If everyone is so smart to avoid buying new and then competes for someone else’s used car, are they not going to pay a premium for this used car relative to the buyer who bought new. Or are they just arrogant enough to believ that they are the only ones who have figured it out.

January 7, 2007 at 12:51 AM #42871

salo_t
Participant

Raybyrnes, you sound like your ready to buy. Are you looking for an agent? I have some property in Temecula I’d like to show you. Hang on to it maybe a year or two then flip it and rake in the cash. Please contact me ASAP.

January 7, 2007 at 9:46 AM #42881

Bugs
Participant

To put the shoe on the other foot, if enough people realized that buying right now is stupid from an economic standpoint, the pricing structure would quickly adjust itself to the point of equilibrium. That fact that hasn’t happened yet (or more correctly, is happening at a slower pace) is all the validation the renters need. They’re in the minority because the masses are still doing what they’re told.

January 7, 2007 at 10:11 AM #42887

PerryChase
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RB, sounds like you’re indeed one step ahead. Now is the time to buy because rents are going up.

http://piggington.com/why_rents_are_going_up

January 7, 2007 at 6:45 PM #42904

Cow_tipping
Participant

There doesn’t neccessarily a up tick in rentals. The basic idea is, every one bought houses to flip. They already live in one, probably pulled equity out and put in “investment” property. Those are now comming into the market as rentals. That is going to drive rents down, and people moving in from outside the area/country and people growing up and moving out of parents home are going to rent for years to come … that would eventually drive up rents and drive up prices on purchases too – eventually – 5-15 years for rents, and 10-20 years for purchases IMHO.
Cool.
Cow_tipping.

January 7, 2007 at 7:05 PM #42906

salo_t
Participant

CT, I can see your point but I think there are too many other factors in play. Many people have bought 2nd and 3rd homes and intended to flip them or rent them out but the market changed and now many of these people will lose these homes do to mortgages resetting, rent wont cover the costs of owning these homes and they will end up back on the market as a repo.
Also, rents and home prices are already sky high at a time when average families are struggling just to put gas in their cars so I don’t see how rents and home prices can go up any more than they are now any time soon.
Most of the excess we see is from all the easy equity pulled out of real estate. Most people in SD don’t make the kind of money that could sustain these lifestyles and home prices.
Most people I talk to don’t even seem concerned about how they will pay all that money they borrowed back. Its just not real to them… yet.

January 7, 2007 at 10:21 PM #42920

SD Realtor
Participant

Bugs to back up your point there was pretty brisk activity on open houses this weekend. My sister in law also works for Coldwell Banker and she said her open houses were very well attended. Looks like a slow slow ride down.

Ray B I think that the run on rentals will not happen until they pencil out. In order for that to happen pricing has to go down or rental rates still need to climb significantly. I will say though, when that does happen I believe you will see investors come back.

SD Realtor

January 7, 2007 at 10:58 PM #42922

TheBreeze
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SD Realtor, what do you think would be the driver for rental rates to go up? Personally, I don’t see anything that will push up rental rates in the near future. My feeling from watching the rental market and the real estate market is that the most that the average family/person can afford in San Diego for housing is $2000-$2500/month or thereabouts. That is, the average income in San Diego can only support that level of housing payment each month.

The reason house prices have increased so much is due to all of these exotic mortgage products that allow people to take on bigger and bigger mortgages while still making monthly payments that the borrower can afford. These mortgage products allowed a whole new class of buyer to enter the market who otherwise would have been priced out. The extra demand pushed up the prices of real estate, but it wasn’t organic demand. Rather, it was a sort of “manufactured” demand that occurred when lower income folks were granted $600,000 mortgages that only required $2,000 monthly paymnets.

So I don’t really see anything that is going to drive up rents. As long as average income in San Diego remains relatively stagnant like it has been, people will only be able to afford $2000-$2500 monthly payments. Once a rental reaches that monthly price, it will begin to top out, with only exceptional properties renting for more than that. However, I could see places that rent for less than $2000 per month climbing to that price, but there seems to be a roadblock once that monthly rental price is reached, and that roadblock is the average income in San Diego.

January 7, 2007 at 11:18 PM #42923

SD Realtor
Participant

I think your analysis is pretty sound. Right now I am renting and our landlord just informed us that he is selling the home we are renting from him later this summer. So I just started looking around at other rentals similar to the one we are in and there are a few out there at our same rent. It is pretty much a supply and demand issue. I don’t believe there are thousands of people selling homes to then become tenants. So this is not gonna push the rental market. Really the only thing I can see that would push the rental market would be something that affects all landlords such as a substantial rise in property taxes or something like that. To sum it up I agree with you 100%.

SD Realtor

January 8, 2007 at 12:48 AM #42924

santeeman
Participant

People are renting out there homes instead of selling which could send the prices of houses down. However, we also have low vacancy rates, so they could and have gone up.

Premiums for a better school, a view I can see, but what will our children do? How will they get the American Dream if you have to be a doctor/lawyer/Bill Gates to buy a house at that premium?

Houses prices are completely out of whack with incomes, therefore they are unsustainable,that’s what the folks here are saying. Falsely inflated,fueled by mass hysteria, greed,and criminals trying to squeeze every last dime out of people who’s only hope was to get in before it was all gone. It’s gotta come down to more earthly levels . Though I personally believe that(most)folks here seem to think those prices are going to be cut in half. I personally can’t see that happening since not everyone bought their homes in ’04 or’05 and can well afford their mortgages.

Rents like everything else will go up, they always do.

January 8, 2007 at 10:43 AM #42941

Diego Mamani
Participant

When facing a cliff, being one step ahead is not where you want to be!

January 8, 2007 at 10:58 AM #42945

(former)FormerSanDiegan
Participant

When facing a cliff, being one step ahead is not where you want to be!

Now that’s a classic !

January 8, 2007 at 7:52 PM #42955

Doofrat
Participant

but where are the people who are going to make a run on these rentals going to come from?

Who is going to be able to sell their house and move into a rental if everybody thinks renting is better? They won’t be able to sell their house, the only people who will have the choice to rent or buy will be people who have not bought yet, but I think the majority of people who could have or wanted to buy, have bought.

Conversely, the only people left who haven’t bought at least one home didn’t qualify (because they were deceased), or didn’t want to (the people on this board). Of course there are others who for whatever reason didn’t qualify (newly released from prison, presently incarcerated, and people in vegetative states) and are renting but I think the majority of people who wanted to have bought and are locked into their houses for awhile, so I don’t think you’ll see a large migration out of houses into rentals.

My guess would be that more houses will move onto the market as rentals next summer. I’ve seen several places in my area that have been sitting empty for months and have a for sale sign on them and a list price at their previous purchase price. Eventually, these owners will have to give up and rent these out.

Of course, I think that rental prices will probably rise, but more because of overall economic growth and not so much because housing costs more now and people want to rent instead of buying.

I think we’ll see the price to rent ratio come down not because of rising rents but because of falling home prices.

January 9, 2007 at 6:55 AM #42999

PD
Participant

I have started to see a number of “for sale” signs with a “for rent” sign tacked on.

January 9, 2007 at 4:36 PM #43078

Raybyrnes
Participant

So wise and witty. You must obviously be the oracle that everyone approaches for advice on real estate and finance.
I’ll pass.

I am just pointing out a very basic principle of supply and demand. You are never going to time a market. Can’t time it on the upside and can’t time it on the downside. With respect to Temecula. I’ll buy wherever and whenever there is value. If there is a home in Temecula that generates free cash flow that produces 12% Return on Investment and carries a 25% margin of safety then great.
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