A 10% annual increase in rents + a 10% annual decrease in sale prices would still take at least a couple years to close the gap; maybe even 3 years. And that’s assuming interest rates or downpayment criteria don’t change during the meantime.
There are limitations in the potential for rent increases, too. No matter what, people have no incentive to spend 50% of their income on housing in this region. Period. And wages aren’t even coming close to keeping pace with these rent increases. Except for the people who were smart enough to withdraw from the market, the market has already absorbed all the first time buyers that came close to qualifying. I don’t see any huge demand (with means) just sitting there waiting to get in. They literally can’t get in at these prices and many of them still wont’ be able to get in at half these prices.
BTW, these rent increases are not universal, regardless of what the article says. I do rent surveys for apartments on a regular basis and there are some areas where those rents have been dead even for the last year and are still down slightly from 2 years ago. Most apartments in this region are not part of professionally managed projects and I strongly suspect they aren’t being adequately counted in these surveys. My point is, people still have options when facing a rent increase in this region.
The bottom line here is that rental tenants should be settling in for the long haul because there won’t be any reason to dive into this market in 2007 and probably not in 2008, either.
