Rental demand and supply

[ybc]

A quick check on Craigslist finds 50 rental listings in this week in Carmel valley with 18 to 19 above $2500. So is this normal? Seems to be high to me. One rental clearly is a recently purchased converted condo.

I chatted with a woman who manages a property management company the other day. She confirmed that demand on rental is very good now, and that price is going up by about 10% yoy. She also said that many owners insisted on rental price based on what they need to cover the mortgage rather than what the market would clear. She said that they would not take a property like that. Also, these owners don’t have the concept of the cost of vacancy. They’d rather get their higher rental price with a couple of months’ vacancy than reduce rent and find a good renter. But the presence of these rental listings are good for their business overall — it pushes price up, especially if some renters are unsophisticated.

So maybe the rental demand is high, but it seems to me that supply is pretty high too; and rents may very well settle down once these new landlords realize how costly a vacant home is.

[PerryChase]

I also read that rental rates are up but I don’t think that the rate increase is sustainable.

The summer is a good rental time because people are on the move looking for places to relocate.

My feeling is that there’re lots of empty homes out there. They’ll turn into rentals eventually.

If i were to rent, i would take some time to find my own rental from a private party rather then going to an agent. Yes, it’s a pain to drive around but it’ll pay off in a lower rental rate for a better home.

Owners insisting on rents that they need cover mortgages are like sellers insisting a price they need to come out even or make a profit. They’ll crack soon. Give it another 6 months.

Just my general feeling. I don’t have hard date to back this up.

[PD]

San Diego has a very large pool of military renters. The majority of military moves occur in the summer. Available rentals probably spike in July but demand also spikes. I also think things will start to sort themselves out in about six months.

[murray]

This issue was covered extensively in the Rents Are Up post on this website.
To summarize: I own 3 SFRs (in Tierrasanta) and on the supply side I have never seen so few available rental properties since I began landlording in 1989. Lower inventory drives up rent prices.
The rental demand side has increased due to people “purposefully” renting rather than buying even if they can afford to buy because they are expecting housing prices to decline from their current peak.

[PerryChase]

Murray, could it be that people are putting rental house on the market hoping to get out? What do you think will happen to rents when empty homes have to be occupied again?

[murray]

Maybe.
Also consider that investors / flippers are not buying more properties and renting them out. IMO this is the main reason why there are fewer properties available.

[privatebanker]

My take on this is that the original increase in rents as of late is the cause of investment property owners trying to lessen the bleed. I can’t tell you how many times I’ve heard people discussing this issue. There are no real fundamentals behind this increase, just look at all the available rentals on Craigslist. There’s pages and pages of properties for rent. A lot of these investment property owners are amateur investors that do not realize that their costs will increase once their ARMs adjust. This increase is simply unsustainable and has no fundamental backing. What average renter can afford to pay $2,500 per month? Very few I’m sure. Of course there are the long term property owners that have noticed an increase in rents and have followed suit, get’em while the gettings good! Have your renters sign long term leases if you can because who knows how long this could last.

[lindismith]

Very astute analysis privatebanker. I tend to agree, only because I’ve had friends rent out their places who did exactly what you’re suggesting. I was stunned when 1 couple got their place rented.

I agree with PD. I think things will stabilize (drop) starting in the Fall.

Plus, when the economy starts to turn, I’m figuring people will lose jobs, and leave, which means more properties (both rentals and for sale) will be on the market.

[powayseller]

Privatebanker wrote “What average renter can afford to pay $2,500 per month?” I agree completely – not many. Median household income in San Diego is “according to the San Diego Association of Governments the county’s median household income is $64,273”. Deduct taxes and insurance co-pays of 20%, leaves $51,418. I will divide by 13 (2 months of the year have 3 paychecks, but you don’t plan your rent around that 3rd paycheck), to get monthly income of $3955. How much of that would you pay on rent? Half? Not even! You would pay 30-40%, max, on rent, making a median sustainable rent $1186 – $1582.

“The San Diego Association of Governments estimates that 172,000 local employees, or 13 percent of the work force, earn less than $8.35 an hour.

San Diego County’s high housing prices, coupled with its relatively low wages, make it the third least affordable major metropolitan area in the country. (National Association of Home Builders, 2006) ”

This is a low wage city. Each time I go to the County Fair, I realize this is a low wage city. Rents are driven by the masses, by the people at the fair.

[FormerOwner]

Hispanic and some Asian families, from what I’ve seen, are increasingly packing more family members into each dwelling unit in order to make the rent. The flip side is that more people per unit means less units will be occupied overall. I observed the same thing when I rented an apartment in UTC in the 90’s, only it was college students that were packed into the apartments to make the rent. There are definite limits on housing costs/rents, no matter how you look at it. As powayseller and others have said, there aren’t that many people that can afford the house prices or rents without some sort of creative financing or living arrangement.

[powayseller]

I think we’re going to see a lot of families moving back in with Mom and Dad, or with their grandparents, or sisters/brothers.

What else can you do when you are foreclosed on, and have no money to make a deposit on a rental unit?

Well, I am going to try to get out of the house for a while, despite my leg injury. It’s such a beautiful gorgeous day, and my kids are too precious to keep ignoring. (I’ve got the greatest kids, I really do… better attend to them so they don’t turn out bitter like our friend barnaby)

[PerryChase]

Yeah, people think they have the greatest kids… just like they think they have the greatest house (but they want to sell it and no one is offering). *Just joking* If anything, your kids must be smart.

BTW, I don’t think that Barnaby is bitter at all.

[powayseller]

Sorry, I didn’t mean to say he was bitter. He posted about his parents’ divorces, and I think that parents who divorce and remarry a lot end up ignoring their kids, and people who perceive they had bad childhoods don’t want kids of their own and end up not liking kids much. I have someone in my family like that. So that was why barnaby said the lady in trouble with her house should not have had 4 kids. It is true that my kids are great because I am tough on them, so they get their satisfaction from their positive interactions and not from whining and manipulating. I swear, so many kids are rude to their parents, but mine are very respectful. They don’t interrupt me while I’m on the computer, not matter how long I’m on it, because they don’t want to annoy me. They help with housework, do their homework. I don’t know if it would have turned out this well had they been “daycare kids”. My kids have a mom and a dad, so their life is better than mine was growing up since I lived with my mom.

The only problem is that my family thinks I spend too much time on the computer, esp. on piggington. So that is a dilemma.

[equalizer]

ps

I’ll babysit your computer if you teach my young little boy not to whine! Just kidding! But I will take kid tips.

[powayseller]

Off topic – don’t read this if you expect housing stuff. This is definitely off topic.

Life’s not perfect here either. My kids don’t pick up after themselves, and my #3 kids has really proven that people are born with their own souls. He has been harder to mold.

I learned the most from the Active Parenting classes (based on the behavioral psychology work of Dr. Rudolf Dreikurs in the 1960s) and Montessori schools.

Dr. Montessori found in her research that kids get satisfaction by meaningful contributions and working with their hands, so the 2-yr-olds make their own snacks, wash dishes, sweep up, and an art lesson’s time is half split between setting up and cleaning up as it is about the art project. The classroom is a house for a miniature person, with everything child sized. Even the mops and brooms are tiny, it’s just so cute.

I was very influenced by Dr. Montessori, so my kids started cleaning the bathroom and using kitchen knives and cooking on the stove at age 2. No play kitchen, no play tools, because they are capable of using the real tools if you show them how, and this makes them empowered and important.

My biggest problem is getting them to pick up after themselves. Kids don’t really care about how clean the house is, so it’s a constant battle.

It’s very important to give them attention, because positive attention prevents bad behavior. If kids are ignored, they seek attention by bad behavior, such as whining, manipulating, acting out, backtalking, balking at your requests, and not caring if they please you. So some back rubs, driving them places, talking with them, playing games, making their lunches instead of asking them to make their own, the same little touches you give your spouse, that keeps everything flowing well. And firm discpline, and a lot of “no, you can’t have that” and responsibility, and an allowance (10% to charity, 10% to savings) to learn financial management. My teen daughter is a clothes hound, but she has to live within her means with her clothing allowance, which I started when she was in 5th grade. She has strict rules about the length of her skirts, no stomach showing, no cleavage, etc. So within those rules, she can buy what she wants. I cringe that she chooses one $150 sweater over five $30 sweaters, but I allow it, I don’t say anything; it’s her money and she has to learn to manage her budget. My daughter looks like a model, she is very pretty, but she is not allowed to flaunt her body. She dresses like a proper young lady, and once she hit middle school, I threw out all my mini skirts so I could be good role model for her.

My kids were instructed into Transcendental Meditation at an early age: age 5 for the children’s mantra, and age 10 for the adult sitting technique. They are sort of regular about it, and my teens love their church youth group activities. Being kids, they don’t like to meditate everyday…

I don’t mean to be a know-it-all. Everyting I say I learned from Dreikurs and Montessori, and it really works. Dreikurs has some really good books: The Challenge of Childhood, and my favorite, The Challenge of Marriage. Marriage is definitely more of a challenge. The euphoria of the first two years wears off, and while kids are cute and adorable and you fall in love with them constantly, staying in love with a spouse is more difficult. I have a great husband, very good-looking and smart and nice, but nonetheless, anybody here with tips on staying in love with the spouse, would be appreciated.

In the spirit of being open, I want to tell you all it is difficult for us to make ends meet in San Diego. I wonder what kind of retirement we will have. How long will my husband have to keep working? If I work now, what will happen with the kids after school? I will not leave them alone, I would rather move back to Omaha and live in a 1 bedroom apartment before I would abandon my kids for a paycheck. But these real choices are here before me every day.

It is very expensive to live here, and although my husband earns above the pay scale for his profession, so that even a promotion to another bigger company would bring a pay cut and copay insurance costs which we don’t have now, his good paycheck is still not quite enough to make it easy to live here. I keep telling my husband that I am willing to leave San Diego and downsize, but he will not leave here. He loves the weather and the beach. He doesn’t mind the sunshine tax, I guess. I am willing to leave though.

Are we going to end up like those people in the Frontline retirement video, who keep working after retirement? We are now in our early and late 40’s, and discussing what kind of life we will have at retirement. We have saved for over 20 years, since our first jobs, into the 401Ks, and we didn’t lose more than $2K during the tech stock crash, but we certainly don’t have enough to consider retiring. It is worrisome. The article I posted today made me realize this is a problem for many people, not just for us.

The money we made from the house give me some security, but we need to use that to buy another house. I think the future is very uncertain, and some uncertainties at my husband’s company add to the mix. If he changes jobs, or careers, his pay will certainly be cut in half. Our life would really change then. No more packing blueberries, raspberries, in the shopping cart without ever checking the price…those days would be gone.

Our best financial times were in Phoenix, right before we moved here. Like now, no car payments, but a very cheap mortgage: $1500/mo PITI on a 15 year mortgage, socking away money for retirement. The kids were younger and less expensive then. They ate less, too. Gas was cheap back in 1999.

Our only hope is that I jump start a career after the kids are in college, and we really sock away the money. I have seen many women make that kind of move, even women without college degrees.

My concerns are nothing compared to the tens of millions of Americans out of work, underemployed, or worried about keeping their homes. I am grateful that today, we are still okay.

[Author]

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