One thing I’m starting to see at ground level is that the softening of the rental structure seems to be spreading.
In the past there have been periods were rents retracted a bit, although never anywhere near the extent that pricing has ebbed off of a peak. However, we’ve never had a period where rents have increased as quickly and as much as they did over the last 7 years. The ‘wealth effect’ became so pervasive in our economy that it even got into the rental market this time, whereas past increases were much more limited.
Depending on what happens in the general economy in this region over the next years I think there’s some possibility of the some significant rental declines. The mighty RE economic engine has derailed and the wages that are being lost there – directly and indirectly – aren’t coming back any time soon.
The bottom line is that regardless of how nice San Diego weather is, most people have no incentive to spend half of their gross income on their housing unless there’s a profit margin in the near term. Renters will always be acting in their own best interests and rental pricing is a huge consideration, so it will always be competitive.
So while I do expect pricing to level off when it nears parity with rental incomes, I also expect rents to retract some too. Just as with pricing, the desirable areas will be among the last where this happens, but if the general trend continues long enough it’ll eventually reach into those neighborhoods too.
