Where rents are headed?

[cv2]

Whether a house is over valued or under-valued depends on the price and the rent it brings. Rent plays an important role in evaluating the housing bubble (see Rich’s bubble primes) and will also be the yardstick for calling the bottom.

Rent has increase dramatically in the pass ten years. Give or take 10%, the rent has doubled since 1996, the bottom of last housing cycle. That’s about 6% increase per year.

There are couple of factors causing this big increase:
1. better apartment. Newer apartments have more attractive amenities like wood flooring, one-piece counters. Privately leased condos also have lots of nice upgrades. All of these cost money and therefore rents increase.

2. short supply: we see lots and lots condo conversions from apartments to private-owned condos. This dramatically reduced the supply of apartments.

3. Landlord’s desire to have positive cash flow. Investors who bought those condos paid dearly for them. Because they bank on the appreciations, the longer you hold the more you gain (of course they assumed the housing prices alway go up). However, this create a negative cash flow situation. To solve this problem, they resort to raise rent to less their short term pains.

Now, the situation is reversed and rent is destined for a correction, just like the housing bubble:
1. much much more supply: condo-conversions are pretty much dead. Foreclosed condos are bought by investors and back on rental market. During the bubbles, builders built tons of spec houses/townhomes/condos. Did I mention all those unoccupied condos in downtown?

2. less demand: There are more people moving out of San Diego than coming in. Yes, people are being kicked out of their homes because of foreclosures but it does not decrease the inventory because they have a place to stay both before and after the foreclosure. I can even argue that because of financial hardship, they may even tend to move back to family to double-up and even further decrease demand.

3. economy cycle: we are in a slowdown or recession depend on your point of view. During economy hard times, rent always go down (look for those move-in specials). During the last housing recession in 90’s, the rent went down while the vacancy rate went up.

So I think San Diego is going to have a rent deduction pretty soon. For any who use today’s rent to evaluate the house values, be careful.

[DWCAP]

I use to think the same way. I had a first hand experience in such in college. 5% is usually considered healthy. One year, we hit something like .8% vacancy. LL’s were in hog heaven. Rents increased like %10+ a year, people were camping out on streets to try to get a place at any price, it was totally nuts.
Then the crash came. No one ever fully explained it well. Two new complexes that were really big opened up, a smaller one that had been being repaired reopened. The university didnt admit quite as many kids as expected. Everyone bought a house. I dont know, but I do know that when I left the apartment complex right next door was offering 9 month leases and vacancy was something like 10%. You heard that right, a 9 month lease. Since the students didnt stick around in the summer, you could rent a place Sept-June, and then move out, and have it waiting for you when you got back next Sept. Reported monthly rents didnt decrease much, but that is one hell of an incentive.

I dont see this happening in SD. Atleast not until we see some serious out migration. Perhaps the slumping economy will help, but vacancy seems really low right now. That isnt a good thing for rents.

[DWCAP]

I use to think the same way. I had a first hand experience in such in college. 5% is usually considered healthy. One year, we hit something like .8% vacancy. LL’s were in hog heaven. Rents increased like %10+ a year, people were camping out on streets to try to get a place at any price, it was totally nuts.
Then the crash came. No one ever fully explained it well. Two new complexes that were really big opened up, a smaller one that had been being repaired reopened. The university didnt admit quite as many kids as expected. Everyone bought a house. I dont know, but I do know that when I left the apartment complex right next door was offering 9 month leases and vacancy was something like 10%. You heard that right, a 9 month lease. Since the students didnt stick around in the summer, you could rent a place Sept-June, and then move out, and have it waiting for you when you got back next Sept. Reported monthly rents didnt decrease much, but that is one hell of an incentive.

I dont see this happening in SD. Atleast not until we see some serious out migration. Perhaps the slumping economy will help, but vacancy seems really low right now. That isnt a good thing for rents.

[DWCAP]

I use to think the same way. I had a first hand experience in such in college. 5% is usually considered healthy. One year, we hit something like .8% vacancy. LL’s were in hog heaven. Rents increased like %10+ a year, people were camping out on streets to try to get a place at any price, it was totally nuts.
Then the crash came. No one ever fully explained it well. Two new complexes that were really big opened up, a smaller one that had been being repaired reopened. The university didnt admit quite as many kids as expected. Everyone bought a house. I dont know, but I do know that when I left the apartment complex right next door was offering 9 month leases and vacancy was something like 10%. You heard that right, a 9 month lease. Since the students didnt stick around in the summer, you could rent a place Sept-June, and then move out, and have it waiting for you when you got back next Sept. Reported monthly rents didnt decrease much, but that is one hell of an incentive.

I dont see this happening in SD. Atleast not until we see some serious out migration. Perhaps the slumping economy will help, but vacancy seems really low right now. That isnt a good thing for rents.

[DWCAP]

I use to think the same way. I had a first hand experience in such in college. 5% is usually considered healthy. One year, we hit something like .8% vacancy. LL’s were in hog heaven. Rents increased like %10+ a year, people were camping out on streets to try to get a place at any price, it was totally nuts.
Then the crash came. No one ever fully explained it well. Two new complexes that were really big opened up, a smaller one that had been being repaired reopened. The university didnt admit quite as many kids as expected. Everyone bought a house. I dont know, but I do know that when I left the apartment complex right next door was offering 9 month leases and vacancy was something like 10%. You heard that right, a 9 month lease. Since the students didnt stick around in the summer, you could rent a place Sept-June, and then move out, and have it waiting for you when you got back next Sept. Reported monthly rents didnt decrease much, but that is one hell of an incentive.

I dont see this happening in SD. Atleast not until we see some serious out migration. Perhaps the slumping economy will help, but vacancy seems really low right now. That isnt a good thing for rents.

[DWCAP]

I use to think the same way. I had a first hand experience in such in college. 5% is usually considered healthy. One year, we hit something like .8% vacancy. LL’s were in hog heaven. Rents increased like %10+ a year, people were camping out on streets to try to get a place at any price, it was totally nuts.
Then the crash came. No one ever fully explained it well. Two new complexes that were really big opened up, a smaller one that had been being repaired reopened. The university didnt admit quite as many kids as expected. Everyone bought a house. I dont know, but I do know that when I left the apartment complex right next door was offering 9 month leases and vacancy was something like 10%. You heard that right, a 9 month lease. Since the students didnt stick around in the summer, you could rent a place Sept-June, and then move out, and have it waiting for you when you got back next Sept. Reported monthly rents didnt decrease much, but that is one hell of an incentive.

I dont see this happening in SD. Atleast not until we see some serious out migration. Perhaps the slumping economy will help, but vacancy seems really low right now. That isnt a good thing for rents.

[(former)FormerSanDiegan]

less demand: There are more people moving out of San Diego than coming in.

In the near-term rents are likely to be flatten due to softness in the economy. So I agree with you on economic cycle effects.

But, while the net domestic migration has been negative (more people moving out than moving in), the population of San Diego has continued to increase.

Now that housing has busted the amount of new homes being built has declined drastically. (less supply)

Another factor that is ignored is the potential for net migration to turn positive. As those who moved out to Riverside County are foreclosed on and/or want to live closer to job centers because of the price of gas, you can expect at least some flow of people into San Diego from the bedroom/commute communities like Temecula. It will be attractive to rent a 1400 2-bedroom apartment 5-10 minutes from work and pay 150 bucks a month in gas, than to pay 1100 for a place in outlying community and pay 500 per month in gas. Not to mention added insurance and maintenance costs and time wasted in traffic.

My opinion is that rents will be soft along with the economy, but will track inflation.

[(former)FormerSanDiegan]

less demand: There are more people moving out of San Diego than coming in.

In the near-term rents are likely to be flatten due to softness in the economy. So I agree with you on economic cycle effects.

But, while the net domestic migration has been negative (more people moving out than moving in), the population of San Diego has continued to increase.

Now that housing has busted the amount of new homes being built has declined drastically. (less supply)

Another factor that is ignored is the potential for net migration to turn positive. As those who moved out to Riverside County are foreclosed on and/or want to live closer to job centers because of the price of gas, you can expect at least some flow of people into San Diego from the bedroom/commute communities like Temecula. It will be attractive to rent a 1400 2-bedroom apartment 5-10 minutes from work and pay 150 bucks a month in gas, than to pay 1100 for a place in outlying community and pay 500 per month in gas. Not to mention added insurance and maintenance costs and time wasted in traffic.

My opinion is that rents will be soft along with the economy, but will track inflation.

[(former)FormerSanDiegan]

less demand: There are more people moving out of San Diego than coming in.

In the near-term rents are likely to be flatten due to softness in the economy. So I agree with you on economic cycle effects.

But, while the net domestic migration has been negative (more people moving out than moving in), the population of San Diego has continued to increase.

Now that housing has busted the amount of new homes being built has declined drastically. (less supply)

Another factor that is ignored is the potential for net migration to turn positive. As those who moved out to Riverside County are foreclosed on and/or want to live closer to job centers because of the price of gas, you can expect at least some flow of people into San Diego from the bedroom/commute communities like Temecula. It will be attractive to rent a 1400 2-bedroom apartment 5-10 minutes from work and pay 150 bucks a month in gas, than to pay 1100 for a place in outlying community and pay 500 per month in gas. Not to mention added insurance and maintenance costs and time wasted in traffic.

My opinion is that rents will be soft along with the economy, but will track inflation.

[(former)FormerSanDiegan]

less demand: There are more people moving out of San Diego than coming in.

In the near-term rents are likely to be flatten due to softness in the economy. So I agree with you on economic cycle effects.

But, while the net domestic migration has been negative (more people moving out than moving in), the population of San Diego has continued to increase.

Now that housing has busted the amount of new homes being built has declined drastically. (less supply)

Another factor that is ignored is the potential for net migration to turn positive. As those who moved out to Riverside County are foreclosed on and/or want to live closer to job centers because of the price of gas, you can expect at least some flow of people into San Diego from the bedroom/commute communities like Temecula. It will be attractive to rent a 1400 2-bedroom apartment 5-10 minutes from work and pay 150 bucks a month in gas, than to pay 1100 for a place in outlying community and pay 500 per month in gas. Not to mention added insurance and maintenance costs and time wasted in traffic.

My opinion is that rents will be soft along with the economy, but will track inflation.

[(former)FormerSanDiegan]

less demand: There are more people moving out of San Diego than coming in.

In the near-term rents are likely to be flatten due to softness in the economy. So I agree with you on economic cycle effects.

But, while the net domestic migration has been negative (more people moving out than moving in), the population of San Diego has continued to increase.

Now that housing has busted the amount of new homes being built has declined drastically. (less supply)

Another factor that is ignored is the potential for net migration to turn positive. As those who moved out to Riverside County are foreclosed on and/or want to live closer to job centers because of the price of gas, you can expect at least some flow of people into San Diego from the bedroom/commute communities like Temecula. It will be attractive to rent a 1400 2-bedroom apartment 5-10 minutes from work and pay 150 bucks a month in gas, than to pay 1100 for a place in outlying community and pay 500 per month in gas. Not to mention added insurance and maintenance costs and time wasted in traffic.

My opinion is that rents will be soft along with the economy, but will track inflation.

[cv2]

My opinion is that rents will be soft along with the economy, but will track inflation.

Hmm, as we all experienced now, inflation is rampant. Do you mean that actually rents will go up?

BTW, I really do not care about the core inflation posted by the government.

[cv2]

My opinion is that rents will be soft along with the economy, but will track inflation.

Hmm, as we all experienced now, inflation is rampant. Do you mean that actually rents will go up?

BTW, I really do not care about the core inflation posted by the government.

[cv2]

My opinion is that rents will be soft along with the economy, but will track inflation.

Hmm, as we all experienced now, inflation is rampant. Do you mean that actually rents will go up?

BTW, I really do not care about the core inflation posted by the government.

[cv2]

My opinion is that rents will be soft along with the economy, but will track inflation.

Hmm, as we all experienced now, inflation is rampant. Do you mean that actually rents will go up?

BTW, I really do not care about the core inflation posted by the government.

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