I’ve remained silent on this issue for awhile because for one thing I didn’t want to make an uninformed statement. However, it did puzzle me that people were thinking that a huge amount of foreclosures, REO’s, and the bubble bursting would lead to a huge amount of rentals available and that rent would go down.
It would seem more reasonable to me that there would be an increased demand for rentals and that would increase rent prices up. With all these former homeowners now becoming renters, they would put pressure onto the existing rental inventory and they would increase rents.
The best scenario I can think of that would support a decrease of rent is that as the banks finally give up and start dumping their REO’s at a good enough discount, investors and flippers would gradually start bringing these properties into rental shape. Because of the new focus on credit and lending, many investors are being required to put in about 25% down. With this environment, this in my view is a process that would take years longer than the “bottom” of the San Diego real estate cycle.
