Rents are up.

[Bugs]

I told you so….

Remember when I said that we should hope that not everyone would come to their senses at the same time and that there wasn’t enough rental stock to accomodate a huge influx of renters? This is an example of that.

[lindismith]

Bugs, are you saying all these people were owning homes before?

[SDLaw06]

I’ll ask her tonight, should be interesting.

[theplayers]

I predict a permanently high plateau for rents!

Absent rent control, rents are a true indication of supply and demand, and they are also closely correlated to income. But what if there’s another phenomena going on here? Recall how those in California drove up housing prices in neighboring states over the last few years, effectively overpaying for homes because they were relatively cheap compared to Calif. They saw their homes appreciate wildly, and then borrowed against their homes (it’s free money, after all!) to buy in Arizona, Nevada, etc.

Perhaps now we’re seeing the same dynamic with rents, that many who have sold over the last couple of years, liberating their equity, are now sitting on a pile of money and can easily afford to pay more rent, and in many cases are overpaying. Do we have any idea how many people have sold in the last couple of years and are now renting? Anecdotally, I know that when we sold in July of 2004 and then rented, I didn’t know anyone who had done the same thing. But now, I know several personally, and see many posting all over the place on blogs.

And could it be that a significant portion of the record high inventory that is for sale right now is non-occupied, thus taking out potential units from the rental pool and reducing supply? Eventually that supply will increase.

If we follow a similar pattern to the correction of the early/mid-90’s, I think we’ll see lots of people leave the San Diego area over the next 4 to 5 years, thus reducing demand and ultimately keeping rents from rising too much. And if we see the recession and job losses that most of us here believe is coming, then many will not be able to afford as much rent.

If wages aren’t rising (they haven’t much lately) rents can only go so far.

[murray]

Let’s review why people rent rather than buy:

1. don’t have house purchase down payment (or can’t service IO loan debt)
2. can’t service a higher mortgage debt
3. living situation is temporary
4. don’t consider property a good investment at the time
5. future consumer confidence / psychology is weak / unknown

Overwhelmingly #3 has been the main reason to rent but in the last 2 years #4 has been the main reason (in my experience landlording 3 sfrs since 1989 – I’m sure apartments are different)

Currently rents are ~ 50% or less than it would cost to own. What is the formula whereby people conclude they should buy (assuming they can afford to) vs rent?

(btw where was that rental open house where 20 people showed up?)

[SDLaw06]

She said they are 98% full, lots of people coming from Texas and lots of people are students that their parents are paying for the rent, and an abnormally high number are people who have sold their house and decided to rent or people that were in a rental home who were told they would no longer be rented to so the home could be sold.

[lindismith]

Thanks for finding out SDLaw06. All those reasons make sense.

ThePlayers, I like your analysis too.

Good stuff!

[(former)FormerSanDiegan]

Texas ?

So, lots of renters are moving to San Diego from Texas ? I thought they were all moving out of San Diego to Texas (Austin, Dallas) to buy houses.

[powayseller]

I’ve never heard of Texans moving to SD. All data and anecdotes point to many people LEAVING SAN DIEGO.

Every day that I go into a store, I start a conversation with the clerk, owner, whatever. I ask them about their business, whether they are hiring because people are leaving San Diego, if they themselves know anyone who moved out of SD, if their customers fill up with gas and why not, etc. I learn about what’s going on by interviewing daily the people I meet. My kids are so annoyed with me. Their most often repeated phrase when I start one of these conversations is, “Mom, I’m going to go wait outside for you”. Then it’s my cue to wrap it up.

Anyway, what I’m hearing in my own little survey is that people are leaving San Diego in droves. This makes it harder to hire and recruit people.

There may be people here and there moving to San Diego, but the trend is to leave, at the rate of 44,000/year as of last June. I bet this year we lost 60,000 people.

[murray]

Update on SFR rental turnover…
Submitted by murray on July 19, 2006 – 10:28am.
Rents are indeed up!
“Two-bedroom units surveyed by the county association rose only about 4 percent over the year, Pinnegar said yesterday. In contrast, single-family-home rents rose by nearly 16 percent, he added. Studios rose by about 13 percent and one-bedroom units increased by 5.8 percent”.

I have a 2000 sq ft sfr turning over Sept 1. I’ll keep you informed on the outcome.

******************************************
I rented the house to the first couple who showed up for my *preview* open house. As with the tenants in the other 2 sfrs I own, these tenants recently sold their house, are qualified to buy but choose not to thinking r/e prices will decrease.

I raised rent 11.8% from last year. Rent is high end for the area.

[PerryChase]

sdrealtor, i’ve read your posts. Here you said that you’re seen prices plateau or decline since 2004. However, you’re are fairly optimistic (by piggington standards) about Real Estate.

What is your prediction of declines for San Diego?

[sdrealtor]

25 to 30% off peak

[an]

I wouldn’t mind waiting for that 30% to drop from current price for one of the townhouse in Airoso. That would put it in the low 300k range.

[rseiser]

We were discussing if rents would rise or fall when real-estate drops. My personal conclusion was that rents might rise in the short-term, as there is a shift of people to the now fewer apartments while some condominiums are for sale and empty. Also, inflation would keep driving up costs and therefore somewhat rents.
In the long-term, rents might stabilize or come down a little (in the hot markets anyways), as basically a lot of houses were built (due to speculation), and now people down-size (due to economic weakness). Here, the same number of people require a lower number of houses or bedrooms. An owner who got an ARM on a house might try to rent out a room now to make his resetting payments.
So far, rents seem rising. I live in a 1-bedroom in Irvine, and my rent will increase from $1465/mo a year ago to $1610. There has been some painting of the complex, but this has resulted in immaterial improvement.
I guess, I will call it quits now and will try to rent a room in a 2-bedroom or house. I am thinking of trying to find a home-owner, who got over his head, and now wants to rent out part of his his house. Any suggestions, other than checking Craigslist?

[Anonymous]

A couple of reasons in San Diego:

1) Less inventory:

a lot of apartments have been condo-converted. Not that they are selling well. but when things are condo-converted, they can’t be rented out..

People who are stuck owning an overpriced flipper home can’t rent them out and break even. They are trying to get rid of them. So they won’t rent them out. Because renting them out would be like them subsidying renters to live there, and would be a slow bleed. These guys will take a one time hit, but won’t rent out at a loss.

2) More renters: less people can afford to buy a home, so more people have to rent. Landlords can afford to raise rents, and more people have to put up with it.

3) Landloads justify rental increases as an inflation adjustment. Afterall, we are seeing higher prices everywhere, why stop at rent?

[Author]

Posts