[quote=flu]
I remember not to far ago, you were mentioning how ridiculously high rent prices were.
And then also, you were considering moving to Atlanta.[/quote]
You’re partially right. Rents are high in certain places because the market seems to be divided into two groups – recent investor landlords and long time landlords. These properties that are seeing a runup in rents have been taken over by recent investors and they are trying to jack up the rents like crazy. However there are also landlords who have owned the property for ages and are more interested in keeping rents low and having low turnover. There are plenty of deals to be had if you look more closely.
Now, the rent in Irvine is supposed to be north of $2000 for a 2bd per the media and “common knowledge” but the above 2bd can be had only for $1475. A friend of mine owns a 2bd as well in the heart of Irvine and he rents it out for only $1550.
There are also plenty of places charging over $2000/mo for similar apartments (similar in terms of size, location and quality of facilities).
There is a HUGE disparity among properties in the rental market just like there is a HUGE disparity in the price people pay for new cars. One person may pay invoice and the other person may be $5000 over MSRP because they are not able to negotiate and research. The spread can be as much as 30% of the cost of the new car which is simply amazing but many people simply pay it because suckers exist whether it be renting homes or buying cars.
My own case is that I recently moved. My old apartment complex was purchased by an investor who immediately jacked up the rent by 25%. I told the investor that they can go F themselves and moved and i’m glad I did because I found a much better deal. However they know that many people stay put for a while because moving is difficult. But just because people don’t move immediately does not meant they will not eventually.
Now regarding the market for purchase that is not the case at all. People throw all sorts of statistics around but the bottom line is this. MYSELF and many many people I know with various types of jobs are able to afford to rent comfortably in Mid and South Orange County but are absolutely unable to buy because the cost of buying an equivalent place is 2X or 3X what it would cost them in rent. In my opinion that is a concerning disparity and not sustainable.
It is common fact that first time buyers have been completely absent from this market solely due to sky high prices. That is not what I call a normal market. And to say that incomes are supporting these price levels is laughable.
Marketwatch recently had a piece where they stated that half of American homeowners can’t even afford the current house they are living in which is a pretty telling statistic:
The claim is that renting and owning are somewhat in parity. That is pure nonsense. First one needs the downpayment. If the downpayment is going to be 5% then the mortgage is going to be higher. A 2bd that rents for $1500/mo. has a list price of around $500,000 in Costa Mesa, CA with HOA fees of around $350/mo. That is the typical listing.
Now compute: 5% down on $500,000 is $25,000, plus closing costs, probably $35,000 out of pocket to start with, then PITI alone on $475k at 4% is $2270, plus $350 HOA, that’s $2620. Oh yes, I have not added PMI as well. In addition all the maintenance that comes with owning a home, who is going to pay all that? When all is said and done you’re looking at over $3,000 or double what a rental can be had for – not even close to parity. If you had to move and rent the place out your cash flow would be highly negative.
Plus owning has a MAJOR disadvantage of the inflexibility of it. If there is a life situation when renting you can simply give your notice and downsize or move out to another area which you can’t when buying. This necessitates that one has a huge buffer for unforseen circumstances, how many first time buyers have that much in reserves?
The truth is that the market is being solely supported by investors/speculators and move up buyers. This is solely because interest rates are at ridiculously low levels and there is no money to be made anywhere else for investors. Once interest rates rise to a more historic level of 7-8% (which may take a while) the rental market is not going to look attractive anymore and capital is going to flee from the housing sector and housing is going to be collateral damage.
People act like houses are intrinsically worth the ridiculous sums that investors are willing to pay for them. No, investors don’t care a damn whether it’s a house, a tulip, gold, silver, copper or whatever the heck it is that can make them some money. When the asset can no longer make them money they will just trash it and move on to the next asset that can generate them an income.
Shiller himself has stated many many times over that housing over the long term just does not generate that great a return compared to the overall market. Even now we are at the tail end of this speculative runup and I am seeing strong signs that it is fizzling out.
Without continued investor support I doubt this housing run-up has any steam left in it and all I see is a downward drop.
As for various predictions by economists, just look at UCLA Anderson’s forecasts during the previous housing bubble. They were saying at the time that the prices were sustainable! LMAO! They were 100% wrong and this is supposed to be the best business school in the country? Laughable.
