Are rents going up?

[North County Jim]

Our recent experience tells me that rents are certainly not going up. We recently sold our house in Escondido and needed to find a rental house in the Escondido-San Marcos area. We found that we were in a position to negotiate down the rent in almost every case.

I should add that the most amazing thing about the process was that every house we looked at, the owner would be cash-flow negative on a monthly basis, some severely negative.

I witnessed several situations where the owners / speculators are – in all likelihood – going to get creamed.

If anyone’s interested in the sordid details, I’ll post additional information.

[powayseller]

Jim – please share your sordid details. I found the same thing – I could negotiate on every rental, and some owners are definitely cash flow negative.

[powayseller]

cowboy – I know some asking rent prices are up, but what are actual rent contracts? I noticed the same listings for many weeks, even over 100 days, because the owner was asking too much. I see a lot of high rental ads, but they are still listed, those same ones. Presumably they are trying to cover their mortgage and/or equity line, but then the place just sits vacant. In Poway and Rancho Bernardo, houses go for about $1/sq ft., and I negotiated on several places and was able to bring down the price on three of them.

[hs]

hi,powayseller,

It seems you are pretty familiar with Northern SD market.

We are first time home buyer. Just made an offer in Nov., but somebody grabbed the deal. Today I saw the same house is on the market again after 1.5 month. The buyer obviously is a flip flopper. He bought the house for about 497k in Nov,(the seller had to sell because of job changing, so he lowered the price from 519k–539k to 499k.) now this flip flopper is asking for 539k–569k.
It is sad to see those flip flopper manipulate the market.
We decide to continue to rent, and wait and see. Do you have some idea about Scripp ranch area rental situation? Do I have to go through agent to rent a house?
Thank you in advance.

[powayseller]

Keep renting until prices stop going down. I checked for rentals online, through the San Diego Union Tribune (you can search by area), craigslist.org, backpage.com, and then the MLS. For the MLS, you need to ask a realtor to get you a link, and then everytime the MLS updates, you get an automatic e-mail update. The MLS shows you the time on market, but for the others you will notice how long you see the same ad. Always ask for a lower price, and if they charge more than $1/sq ft, they are overpriced and no one will want it until they reduce the price. Some novice investors ask for high rent prices to cover the mortgage, but seasoned investors expect to be cash flow negative, so they price theirs at market rate. You have good karma to have lost the house in November. Keep an eye on the house, and keep us posted – my guess is it will sit on market until the flip flopper lowers it to $450K. Prices are declining, not rising, and homes priced too high just sit until the prices are lowered.

[North County Jim]

The worst case we ran into was a speculator from New York. We were given his number by the contact from Craig’s List. Before speaking with him, I checked the particulars on the house from publicly available stuff at the county website (selling price, property taxes, etc.). He paid $647k in October 04. His asking price for rent was $2,200.

He was trying to rent out a one-year-old house in the new Hidden Trails subdivision of Escondido. He wanted to rent it out on a month-to-month while also listing it for sale (asking price of $760-790k; I should add that there appeared to be no improvements to the house other than those put in by the developer). I told him we weren’t interested in that arrangement. I also told him he needed to lower his selling price if he wanted to sell the property. His response: “I can’t. If I do, I won’t make a profit.”

He called a half hour later and suggested that we see the house. We did check it out and it was very nice (3,100 sf on a big lot; decent amenities). I called him back and told him we liked it but we still couldn’t rent a house while it was being sold. He offered to take it off the market for 6 months for us but he would also raise the rent $200/month. He also disclosed that his monthly nut on the place was ~$3,900. I took him at his word.

We ended up renting another place and when I spoke with him, he had a lot of questions about the market. I told him it had softened with the October YOY median resale price in the county only up about 2%. I also suggested that he take a trip out to San Diego so he could drive around north county and witness the amount of new home construction that was occurring. He mumbled something about holding out for the “miracle offer”.

A week or two later, I noted that he had dropped his asking price by $10k. Not enough IMO. The listing has since disappeared. I haven’t seen a sale show up yet on the county web site so I assume he found a renter.

How many others are out there like this guy?

[nhamlin]

A housing unit is a housing unit is a housing unit. When an upscale home is built in Carmel Valley an average of four households will improve their housing situation. The Carmel Valley home may be purchased by someone from Tierrasanta whose home may be purchased by a someone from Clairemont. That home may be purchased by a tenant Mission Valley.

The point of this is Condo Conversions will have no long term impacts on vacancies. When an apartment building is converted to condos, those units are not occupied by Martians. They are typically occupied by apartment dwellers who move in and free up an apartment unit. Yes conversions create a lot of inconvenience for those whose units are converted but it does not create a housing shortage.

I operate 165 apartment units in the North Park University Hts and Normal Hts area. Over the last several years, I have lost many excellent residents who have purchased condo coversions.

In my experience that trend has stabilized and I don’t see that many of my residents moving to purchase their own place.

Vacancies today are noticeably lower than a year ago and obtainable rents are up about 2%. To me obtainable rent is the price at which I would rent a vacant unit.

I do believe that conversions decrease vacancies in the short term. When apartments are coverted there is a period of some months between the time that an apartment tenant vacates and a condo buyer moves in. Considering the number of units in process I would think that number is significant for any given neighborhood. I would love to hear from anyone who can put numbers on how much neighborhood vacancies are impacted.

Norman Hamlin
[email protected]

[hs]

Thank you for the information, powayseller.

I will keep my eye on that flip flopper’s house. My guess is he(she) is testing the market. I don’t think he(she) can sell at that price right now because on the same street there is a better designed, bigger condo for sale for 509k–539k, unless this market will go crazy again in Spring and interest rate won’t go up which I doubt.
Thanks again.
Happy New Year!

[hs]

Market conditions (realtytime.com)

I just saw this article from “realtytime.com”. It seems they are trying to scare the renters.

Market Conditions
by Carla L. Davis

The new year is upon us. What should buyers and seller expect from their local real estate market?

Realty Times takes a look at areas across the nation in today’s report.

The National Association of Home Builders released a report on December 21st that highlighted how, while the economy of 2006 appears to be set for decent growth patterns, the real estate market is expected to return to numbers that are similar to that of 2004. That means no bubble burst — but a normalizing of the market.

“It’s pretty obvious at this point that the real estate market is gradually shifting to more of a buyer’s market,” said James Glassman, JP Morgan Chase Senior Economist. “This has been a case of real estate prices catching up to market fundamentals – not a ‘bubble.'” With this in mind, “It’s reasonable to assume that house-price appreciation will be slowing down to the single digits.”

A normalizing market is, however, cause for concern for some sellers. This means that their home, which could have netted them 15 to 20 percent profits (for example) in 2005, might only sell for 10 to 15 percent profits. The numbers vary greatly by area — being affected by local economies, government policies and laws, and a multitude of other factors.

Off of the western coast, Hawaii has seen enormous returns for investors of the last five years.

Our real estate experts report that the Maui real estate market, booming in 2003 and 2004, has showed some recent slowing. Condominium and land unit sales Island-wide for the year through only October had already declined by anywhere from 11 to 15 percent. This slowing in unit transactions, however, was offset by increases in average sales price. These figures are still what some would consider outstanding. Home prices increased 27 percent this year. Condominiums increased by 18 percent. And coming in at the lead, land prices rose 42 percent. These trends are not expected to continue.

Looking to the south, the NAHB notes that manufactured or “HUD-code” homes might see a temporary surge in activity, due to need for affordable housing in areas hit by this summer’s hurricanes.

In San Antonio, Texas, inventories are high, meaning finding a home to buy is easier than in some locations of the country. New homes can be purchased in the low to mid $100,000s. The average current home sales price is $137,971 for last year.

One expert writes a warning for renters, however, saying, “One should note that due to a large influx of investors we are starting to see more days on market for rentals. There are currently 1399 homes available for lease, average days on market is 63, and the average asking rent is 1282 dollars. This is an increase of $239 a month in rent and 7 days more on the market.”

Published: January 2, 2006

[North County Jim]

Here’s an update on the New York speculator. The house is back on the market as a “new” listing. Here’s a progression of his asking prices since I first encountered him in October.

First asking price: $759-789k
After I spoke with him: $749-789k
New asking price: $725-775k

Still too high IMO. Outside the increasingly unlikely “miracle offer” he mentioned, I don’t think he’ll even get a nibble until he’s below $700k.

If anyone’s interested, the MLS # is 066002128.

[ricechek]

I rent a condo near UTC mall and my rent will be raised 3% soon (end of year lease). I’m seeing a settling point for 2BR/2BA condo rentals here at $1650-$1750.

As for the “more people coming into SD” theory, please keep in mind that Biogen-Idec just laid off a bunch of people in the Biotech sector, and no new BIG tech/biotech starts are happening. All the job growth for the past 3-4 years has been related to real estate.

– ricechek

[hs]

rent up?
Anybody knows what was the rental situation in scripps ranch? I recently checked their price and it seems the average asking price is pretty high, for around 1200sqt, they are asking for $1650, most of them are above $2000(don’t know the size.) Is this too high?

[powayseller]

Rental prices are about $1/sq ft around Poway and Rancho Bernardo, with a base price of at least $1700 for a house. So a 1500 sq ft house could cost $1700, but after 2000 sq ft, they’re about $1/sq ft. You might find a little higher for a brand new house or a huge lot, about $1.10/sq ft. The owners who are asking more, are not getting it – those are vacant. Next time you see a rental priced over $1.10/sq ft, ask how long it has been on the market, and check what the landlord got when he/she finally found a tenant.

On my street, another rental has been available for over 3 months. It is 2000 sq ft, and they are asking $2350 (down from $2650). It is still vacant.

Asking price doesn’t mean much. Landlords, who bought on hopes of appreciation, are trying to get what they can. Experienced landlords ask for competitive market rates, such as I quoted you above.

[hs]

Thanks for your information, powayseller.
Seems rent is definitely higher in scripps ranch. for around 1200sqt, they are asking for more than $1600. Especially those near miramar lake, they are all asking for more than $2000. Maybe those investors are all in negative cash flow,so they have to ask for higher price to cover that.

If it is not for my daughter’s school, there is no way i would rent it there.(She needs to be in CA GATE(gifted and talented education) seminar program, which only Miramar Ranch Elementary school provides in this area. They told me if you are the resident in scripps ranch, you have more advantage to get into the program.)

[PerryChase]

This is a re-post of something I found on Ben’s blog.
I believe that it’s a sign of what’s to come in San Diego. Remember all the free rents of the 1990s? They’ll be back.

Owners right now are still in denial. So it’ll take time.

————————-

The Providence Journal from Rhode Island. “One classified newspaper ad says ‘1st Mo. FREE.’ Another: ‘Free Heat, Free Hot Water and FREE RENT!’”

“The latest ‘promotional giveaways’ to lure new tenants even include a free spa getaway weekend. If that’s not enough, one property manager offers $500 to anyone who makes a referral that lands a new tenant.”

“The reason is simple: rental properties are going empty. ‘Our occupancy rates are off anywhere from 2 to 5 percent’ from last year, said Cheryl Martin, VP of Residential Property Management of Warwick. ‘We need to do something to be more aggressive in order to compete.’”

“Property managers and real-estate agents say the demand for rentals priced at $1,100 per month and up has gone soft. Not since the recessional mid-1990s, Martin said, have they resorted to freebies to lure new tenants.”

“The large number of rentals going empty is reflected statewide in the ‘rental vacancy rate,’ which has nearly doubled in the last three years, to 7.7 percent last year, according to U.S. Census data.”

“‘We’re flooded with inventory,’ said Diane Barone, a real-estate agent in Cranston. ‘The rental market is terrible; it’s just terrible. You get a bunch of people and you show, you show, you show, and they’re just sitting there.’”

“The construction of hundreds of condos, many in downtown Providence, has also flooded the real-estate market, and some of the spillover is driving up the inventory of rentals as condo owners who can’t sell their units decide instead to rent them out.”

“‘I have a client right now, he’s got a little house on Ninth Street for $1,600 a month, and he’s down to $1,300 and nobody even wants to look at it,’ said Suzanne Knight, a real-estate agent on Providence’s East Side. ‘It’s been vacant for four months now. … There’s just much more supply than demand.’”

“East Side property owners are competing with new downtown properties, Knight said. ‘There are hundreds of rental units downtown that weren’t here two years ago,’ Knight said. ‘You’d think landlords would lower their rents, but it takes a while. So they’re empty.’”

[Author]

Posts