Contrarian Thought

[Raybyrnes]

If we accept that housing is in a bubble and prices are due to change direction might we similarly accept that with rents are equally undervalued and are scheduled for an increases. As property management looks at cap rates and Condo’s eat up supply of available rental property might one say that it would be a good time to own rental units.

A final thought. Everyone is focuses on individual homes, condo’s etc. I have never seen Condo conversion so heavily advertised. When an individual can make their payments the home is foreclosed on. What happens when developers can sell units or make payments. My understanding is that there are a feww condo converters who are walking away form their options becasue they can not get the funding. Must be tough to walk away from 500K option. Any thoughts???

[lostkitty]

I disagree about “accepting” that rents are undervalued. It all comes down to what people can afford, what the market will bear. Housing prices artificially inflated due to funky loan products that made mortgage payments temporarily affordable (until rates increased). The same cannot be done for rents. If a landlord does try to get people in with “teaser” rent numbers and then try to up the price as happens with ARM’s, the renter simply walks away and finds something that they CAN afford. Face facts, the average person/family does not make that much money! No, not even in beloved San Diego…

[JP]

I agree with lostkitty, for somewhat different reasons. Agents routinely try to increase rents, but while the unit sits empty, the agents look at other options. After a month or two of lost money, they lower the ask.

As with buying, rent is all about competition and alternatives. The major difference is that renters are not competing with each another using suicide-loan instruments. Hence the disparity in price/rent ratios.

[powayseller]

A related thought: if you sell and rent a house, make sure your landlord can handle being cash flow negative for the duration of your tenancy. The worst thing is having a landlord with an ARM, and he loses his house to foreclosure, and you have to move out (when your 1-yr-lease is up).

This is not a problem in apartments, since those are marketed to renters.

[CharlieG]

Some good points made here. I believe that rental demand is somewhat elastic, because people tend to get into roomate situations as the economy worsens and/or rentals tighten. This effect on the bottom end would impact pricing throughout.

An interesting thing to note these days is that my wife and I are renting a much larger house than we intended; for just a few hundred dollars more we are in what feels to us a palace. Our rental is deep into mortgage territory, and like selling a used 2-year old Mercedes, hardly anyone touches this sort of end of the market. Great for us!

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