Coastal rents…will they ever go down?

[sdsurfer]

I’ve been googling and searching online a bit for a source that shows rent appreciation historically based on region. Specifically, North county SD if possible.

Does anyone have one?

I know prices seem high and all, but I just believe in coastal real estate as a good investment option. My goals are always long term and based on rent going up over time in coastal areas because I know there are a lot of people that will pay extra to live by the beach and might never be able to afford to buy the same home. I always buy based on rents considering possible appreciation as the gravy that I like, but does not drive my decision-making process.

I’d appreciate the help with a source for the data, but please chime in with why you think rents will go down (and why with data is preferred) over the next 10+ years if you would like to share some insight.

I’ve just never been a stock guy and although I think real estate is expensive right now I’m thinking of looking for another investment in the Encinitas/Cardiff area. I’m currently in my pre-investment couple month period I always spend talking myself out of doing it. I usually fail at doing so and end up buying something. So far so good I guess, but I appreciate anything you might share.

Make it a great day!

Sdsurfer

[La Jolla Renter]

I’ve always found rent data comes too much from apartment associations and never reflected beach pricing.

I’m curious what property type and price points are you looking for.

[sdsurfer]

I think I’d have to agree with you on the lack of unbiased data. Was thinking maybe a Pigg had something or could point me in the right direction. I can get recent stats through NSDCAR, but not historical that goes back. I’ve love a chart that goes back 30-40 years.

I’m looking for a duplex most likely, but we’ll see how it goes.

[Rich Toscano]

This is not exactly what you’re looking for, but the BLS has a San Diego CPI series that includes rent, which you can break out. It’s not the coast, though, but all of SD. Might give a ballpark though.

[Escoguy]

Most likely no

http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs_2016_state_of_the_nations_housing_lowres.pdf

from report:

Rental demand is expected to remain robust over the next decade as the youngest members of the millennial genera- tion reach their 20s and begin to form their own households. Moreover, if homeownership rates for households in their 30s and 40s continue to slide, rental demand will be stronger still. For their part, the aging baby-boom generation will boost the number of older renters, ultimately pushing up demand for accessible units.

It is unknown whether high-income households will continue to fill the growing inventory of higher-end rentals or make the transition to homeownership.

Regardless, expanding the rental supply through new market-rate construction should provide some slack to tight markets as older units slowly filter down from higher to lower rents. Once high-end demand is sated, developers in some areas may turn their attention to middle- market rentals, although high development costs mean that building new units affordable to even moderate-income house- holds is difficult without government subsidies.

[sdsurfer]

Thanks Rich! Wow…lots of info on that site. I’ll dig in and see what I can find. I’m kinda surprised more piggs are not interested in this topic. I appreciate you pointing me in the right direction.

[an]

In my area, rent didn’t drop during the last crash, so I’m not sure it would ever drop. Unless we see a major mass migration out of the region.

[sdsurfer]

[quote=Escoguy]Most likely no

http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs_2016_state_of_the_nations_housing_lowres.pdf

from report:

Rental demand is expected to remain robust over the next decade as the youngest members of the millennial genera- tion reach their 20s and begin to form their own households. Moreover, if homeownership rates for households in their 30s and 40s continue to slide, rental demand will be stronger still. For their part, the aging baby-boom generation will boost the number of older renters, ultimately pushing up demand for accessible units.

It is unknown whether high-income households will continue to fill the growing inventory of higher-end rentals or make the transition to homeownership.

Regardless, expanding the rental supply through new market-rate construction should provide some slack to tight markets as older units slowly filter down from higher to lower rents. Once high-end demand is sated, developers in some areas may turn their attention to middle- market rentals, although high development costs mean that building new units affordable to even moderate-income house- holds is difficult without government subsidies.[/quote]

Thanks Escoguy!

I really appreciate the link/article. Some great insight in there…I really liked this part:
Although conversion of formerly owner-occupied singlefamily
homes to rentals met much of the initial surge in
demand, construction of multifamily units is now taking
on a growing share. But even with these additions to supply,
rental vacancy rates have fallen steadily since 2010,
dropping to just 7.1 percent by the end of 2015. Rents have
climbed in response, with the Consumer Price Index for
rent on primary residences up 3.6 percent in nominal terms
last year. When adjusted for inflation, it has been
three decades since either of these measures registered such
tightness in the rental market.

[sdsurfer]

[quote=AN]In my area, rent didn’t drop during the last crash, so I’m not sure it would ever drop. Unless we see a major mass migration out of the region.[/quote]

I agree. There was a bit of a dip with certain properties with regards to price, but the rents held strong when investors picked up those opportunities and converted them to rentals.

[Escoguy]

sdsurfer,

These last few weeks have been eye opening.

I had some tenants give notice (they are buying now). I knew I was a little below market but was able to get an average 13% increase on the units that came open.

The new tenants were overjoyed too as they are getting larger, more modern homes.

I was able to lease very quickly (within days) and had in some cases over 100 views in a few hours on zillow.

A couple of people wanted to negotiate but I was polite and told them there was no need. As an FYI, these are SFHs with values in the 650 range going for approx $3200-3300/month. (Inland North county)

I had the impression many of the alternatives were going for $3500-$4000 as one applicant (who rented for $3900 in Del Sur) told me she thought I was $200 below market. Mine are not in Del Sur.

I don’t think the market will soften any time soon.

I noted that many of the applicants have very long commutes: from Palm Springs/Vegas/Riverside County/LA area. Their salaries were also stronger on balance than I initially expected. Some were relos, but some could work remotely and just wanted to be in SD county.

Not to speak of the ones who needed to move because their landlords are selling now.

Perhaps the AirBNB is pushing rents at the coast higher so some feel the need to look inland.

All in all, a very encouraging and interesting few weeks.

[sdsurfer]

It’s really interesting in a way because I feel like we get solid applications for our rentals sometimes and wonder, “why dont you buy?”, but I guess people have their reasons or do not like the price of what they can afford so they rent where they want to live.

I think that is a lot of it right there. The aspect that people always want what they cannot have so rather than sacrifice and go inland a bit to buy many of them stick it out and pay more to rent or find a smaller place to keep the beach lifestyle.

[The-Shoveler]

I was looking at some absolutely mind blowing population growth projections for California earlier this morning.

The current population in California is 38 million, which is project to grow to 60 million by 2050.

That is absolutely astounding if true, they need to be pounding nails as far as the eye can see for the next 35 years just to keep up if that is what the future really holds.

[Escoguy]

sdsurfer,

Yes it is notable, because some renters ARE buying, two homes open up, but are filled immediately.

Many of the other applicants also want to buy but even with a 180K-200K+ salary coming from Las Vegas/Riverside or Palm Springs, the sticker shock to buy is still there.

It probably takes a few years to become acclimated to the prices. Unfortunately for them, by that time, they will likely be higher but with their salaries, they can probably afford them if they make that choice.

[joec]

This thread is interesting…I agree that unless there is some subsidy, I doubt there will be much lower (< 600k) sfh construction anywhere in primer San Diego (coastal/north inland, not counting east or south SD). As mentioned in the home insurance thread, I think building costs have probably also sky rocketed from just 5 years ago as my home insurance has doubled pretty much. With so much anti-development all over SD and CA in general, I don't think supply will ever catch up to all the higher income jobs in the work centers so if I was lower income and didn't buy already, I'd seriously move. With the crash in 08-10, rents probably stayed the same more or less because people who lost homes still had to live somewhere supporting the rental market. I know a few people who were doing the massive leverage home buying during the bubble and loss all their homes. As mentioned, I think unless something drastic were to happen with people leaving SD or CA in general, prices won't do much, but probably steadily go up continuously as will rents. Good for the asset holders for sure... SF may drop a little I think since the tech IPO market seems to have slowed a bit. Rent there is insane I hear with 2bdrms going for 5k/month+.

[outtamojo]

How soon before we see rent control measures or has the movement already started?

[Author]

Posts