My prediction is that rents will have a temporary spike during this transition in the real estate market then level out again. Rents will not rise nearly enough in the short term to prop up the housing bubble unless there is a massive influx of people to this area.
My opinion is based on two general lines of thought. First is that “housing is housing is housing”. What I mean is that there are a certain number of roofs in (say) San Diego. There are a certain number of people who want to live under those roofs. The flow between owner occupied homes and rented homes is pretty much a zero sum game (internally). Any real “shortage” in rental housing is caused just like it is for owner occupied homes – outside people relocating to the area. I don’t see too much of that right now so I think the internal pressures on rents will ease up rather quickly.
Without outside pressure on the rental supply, then those who are selling homes just to rent are really a non-factor. Meaning that “someone” had to buy their house from within the area therefore freeing up yet another property for either rent or owner occupation (who in that case gave up yet another local property somewhere… eventually down the road it likely reverts back to a rental somewhere).
There is however a “flow”, much like cash flow. The money is coming, but right now things are tight. When the boom happened, I remember many people scared that so many of their renters were leaving to become homeowners. Then the pressure was relieved some when so many apartments got “converted”. Now, everything is “converted” and more renters are starting to flow back. Well, this “flow” is leaving many homes (condos, etc) unoccupied (as we’ve seen the RE inventory rocket up). Many of those will be returned to the “rental” market and soften the load from the renters who have already returned to that market. It’s just an issue of timing really.
My second point as to why rents will (in my opinion) not rise enough to support this housing bubble to any degree is that renters have absolutely zero incentive to overpay for their home. There is no future upside for them, no future equity to be gained, therefore no reason to pay more than what they feel is relatively reasonable. The only incentive they have is not wanting to leave the area all together. That is a strong incentive, but that incentive is really already built into the rental market and has been for many years. We pay WAY more rent than most other parts of the country (save for NYC and other choice areas).
So, going above and beyond this (just to support someone else’s mistaken speculation on an asset) and other normal inflation factors will only serve to push more people out of the market entirely and reduce pressure on the rental market.
So, to sum up – Short term price spikes (relatively small) as rental supply remains low and potential renters increase then an easing as the properties these new renters left behind begin filtering back to the rental market (along with hundreds of unsold “conversion” inventory and new condo/home projects) to support the shifting demand.
