Great proposal Baron and Rustico. I will agree that the not so prudent investors are buying up some of these REOs at these currently discounted prices(but not even close to bottom prices). I also agree that rental supply has surged up here as well. The market is quite loose up here, in other words there are many vacant homes, either for sale or for rent. I further agree that rents must retreat, as they are currently IMHO.
I have seen 3/2 bed homes for rent in Temecula for around 1500. It seemed that 2 years ago, there wasn’t any homes to rent for under 1600.
Another reason is that so many employed up here were in construction or real estate related fields that have now nearly come to a halt. There are only so many big box stores, diners, car dealers, or school district jobs that one can apply for, and all of these employers are letting go as well due to the beginning of the recession. I say recession because you can debate whether the US is in a recession, but there is really no debate that CA, and especially the bubble areas are in a recession.
I also agree that the initial phase of investors is being burned, and that there is a good chance that some of the homes closing escrow of late will be back on the auction block or MLS in a year or so. I still hear of people buying with less that 20% down, and I guess fha and va are popular.
Yes, we are on the cusp of another big step down in pricing, this I am nearly certain, but I agree with others like TG that we are experiencing a “suckers rally” or a bear market rally which is normal and to be expected. It may last until mid summer, or so. Prices aren’t rising or anything, but there are those who can’t resist pulling the trigger. Not to mention people still have the “Donald Trump Syndrome” where they think that owning homes = millionaire in the making. But there is a whole slew of supply that will hit the market in 3 to 6 months.
I look at it this way: The housing bubble allowed thousands of homes to be built for thousands of people who shouldn’t have been buyers(fbs, subprimers). Many of these people were questionable renters at best. But since they had a pulse, they bought a home. The homes that they bought with money that didn’t exist, not only drove home values up in a violent, and volatile manner, it also created thousands of jobs, from construction to RE, to landscape, etc. I mean, construction and RE in the IE is like casinos and gambling in Las Vegas. Now that we are seeing that these people foreclose, sell short, etc, we are left with a bunch of homes that don’t have enough qualified buyer. Buyers now either left the area, can’t qualify, have damaged credit now, or have lost their bubble jobs too. Point is that many investors aren’t thinking this out. As someone investing in rentals in Temecula, you need to consider home price depreciation, recessionary effects of the locals to pay rent, and possible increase in vacancy rates.
