Will rents create a price floor despite the mini rental bubble?

[bjensen]

Here in Orange County rents have increased something in the order of 30% over government reported inflation, and definately increased at a higher rate than wage increases. I’m not sure the number in San Diego.

So this is my question. Why do so many peg their buying decision to a break even between rent/mortgage if the decision is based on reaching parity with a lesser bubble?

The rent bubble doesn’t make much of a news story in light of the home price bubble, but if the home price bubble didn’t exist, the increases in rents would be quite a story in and of itself.

I am no economist so maybe someone has an answer for me. Will rents never decrease accordingly? I read that OC rents are increasing at the lowest rate in 8 years. Are they ever going to decrease, or will real estate/rents only drop to a level still detached from local incomes as a result of a built in rental cost floor?

[EconProf]

BobS
Your post is confusing. The first paragraph contradicts the last.
Are rents increasing 30 percent more than the government stated inflation rate (of about 3%)? That would mean they are going up about 4%. Or do you mean 30 percentage points more than the government inflation rate, putting them at about 33%.
Then in your last paragraph you say they are going up at “the lowest rate in 8 years”.
What are you trying to say here?

[EconProf]

BobS
Your post is confusing. The first paragraph contradicts the last.
Are rents increasing 30 percent more than the government stated inflation rate (of about 3%)? That would mean they are going up about 4%. Or do you mean 30 percentage points more than the government inflation rate, putting them at about 33%.
Then in your last paragraph you say they are going up at “the lowest rate in 8 years”.
What are you trying to say here?

[EconProf]

BobS
Your post is confusing. The first paragraph contradicts the last.
Are rents increasing 30 percent more than the government stated inflation rate (of about 3%)? That would mean they are going up about 4%. Or do you mean 30 percentage points more than the government inflation rate, putting them at about 33%.
Then in your last paragraph you say they are going up at “the lowest rate in 8 years”.
What are you trying to say here?

[EconProf]

BobS
Your post is confusing. The first paragraph contradicts the last.
Are rents increasing 30 percent more than the government stated inflation rate (of about 3%)? That would mean they are going up about 4%. Or do you mean 30 percentage points more than the government inflation rate, putting them at about 33%.
Then in your last paragraph you say they are going up at “the lowest rate in 8 years”.
What are you trying to say here?

[EconProf]

BobS
Your post is confusing. The first paragraph contradicts the last.
Are rents increasing 30 percent more than the government stated inflation rate (of about 3%)? That would mean they are going up about 4%. Or do you mean 30 percentage points more than the government inflation rate, putting them at about 33%.
Then in your last paragraph you say they are going up at “the lowest rate in 8 years”.
What are you trying to say here?

[bjensen]

Sorry, I forgot to check and see if my post made any sense!

This is what I know. Rents in Orange County have increased aproximately 30% over inflation in the last 7-8 years.
This year, they are starting to stabilize. They are rising at the lowest pace in 8 years, but are still increasing.

So many consider a property affordable when monthly rent and a similary property and monthly mortgage costs on their potential purchase are equal. However, rental prices are out of whack with historical norms as well.

So, do you think rents are going to decrease and fall in line with historical rent/income ratios or will median rents continue to increase, albeit at a lower percentage year over year?

Does that make sense?

So are

[bjensen]

Sorry, I forgot to check and see if my post made any sense!

This is what I know. Rents in Orange County have increased aproximately 30% over inflation in the last 7-8 years.
This year, they are starting to stabilize. They are rising at the lowest pace in 8 years, but are still increasing.

So many consider a property affordable when monthly rent and a similary property and monthly mortgage costs on their potential purchase are equal. However, rental prices are out of whack with historical norms as well.

So, do you think rents are going to decrease and fall in line with historical rent/income ratios or will median rents continue to increase, albeit at a lower percentage year over year?

Does that make sense?

So are

[bjensen]

Sorry, I forgot to check and see if my post made any sense!

This is what I know. Rents in Orange County have increased aproximately 30% over inflation in the last 7-8 years.
This year, they are starting to stabilize. They are rising at the lowest pace in 8 years, but are still increasing.

So many consider a property affordable when monthly rent and a similary property and monthly mortgage costs on their potential purchase are equal. However, rental prices are out of whack with historical norms as well.

So, do you think rents are going to decrease and fall in line with historical rent/income ratios or will median rents continue to increase, albeit at a lower percentage year over year?

Does that make sense?

So are

[bjensen]

Sorry, I forgot to check and see if my post made any sense!

This is what I know. Rents in Orange County have increased aproximately 30% over inflation in the last 7-8 years.
This year, they are starting to stabilize. They are rising at the lowest pace in 8 years, but are still increasing.

So many consider a property affordable when monthly rent and a similary property and monthly mortgage costs on their potential purchase are equal. However, rental prices are out of whack with historical norms as well.

So, do you think rents are going to decrease and fall in line with historical rent/income ratios or will median rents continue to increase, albeit at a lower percentage year over year?

Does that make sense?

So are

[bjensen]

Sorry, I forgot to check and see if my post made any sense!

This is what I know. Rents in Orange County have increased aproximately 30% over inflation in the last 7-8 years.
This year, they are starting to stabilize. They are rising at the lowest pace in 8 years, but are still increasing.

So many consider a property affordable when monthly rent and a similary property and monthly mortgage costs on their potential purchase are equal. However, rental prices are out of whack with historical norms as well.

So, do you think rents are going to decrease and fall in line with historical rent/income ratios or will median rents continue to increase, albeit at a lower percentage year over year?

Does that make sense?

So are

[gdcox]

The normal relationship is illustrated by the national Owners’ equivalent rent of primary residence in the CPI which accelerates whenever house prices are under pressure for the obvious reasons that many choose to rent because they decide to wait to see what happens with house prices.

What you report rather flies in the face of this: ie a deceleration in rental growth whilst the OC real estate situation worsens. If true, there may be other local factors over-riding. For example the employment situation may have worsened significantly in the last year enough to outweigh the normal pattern; but I doubt it.

But frankly rental is a poorly researched subject everywhere because big business is not involved or interested, it is not a major cog in economic models and the data sources are poor.

It is one of those few areas in which an individual amateur analyst could make a big impact.

[gdcox]

The normal relationship is illustrated by the national Owners’ equivalent rent of primary residence in the CPI which accelerates whenever house prices are under pressure for the obvious reasons that many choose to rent because they decide to wait to see what happens with house prices.

What you report rather flies in the face of this: ie a deceleration in rental growth whilst the OC real estate situation worsens. If true, there may be other local factors over-riding. For example the employment situation may have worsened significantly in the last year enough to outweigh the normal pattern; but I doubt it.

But frankly rental is a poorly researched subject everywhere because big business is not involved or interested, it is not a major cog in economic models and the data sources are poor.

It is one of those few areas in which an individual amateur analyst could make a big impact.

[gdcox]

The normal relationship is illustrated by the national Owners’ equivalent rent of primary residence in the CPI which accelerates whenever house prices are under pressure for the obvious reasons that many choose to rent because they decide to wait to see what happens with house prices.

What you report rather flies in the face of this: ie a deceleration in rental growth whilst the OC real estate situation worsens. If true, there may be other local factors over-riding. For example the employment situation may have worsened significantly in the last year enough to outweigh the normal pattern; but I doubt it.

But frankly rental is a poorly researched subject everywhere because big business is not involved or interested, it is not a major cog in economic models and the data sources are poor.

It is one of those few areas in which an individual amateur analyst could make a big impact.

[gdcox]

The normal relationship is illustrated by the national Owners’ equivalent rent of primary residence in the CPI which accelerates whenever house prices are under pressure for the obvious reasons that many choose to rent because they decide to wait to see what happens with house prices.

What you report rather flies in the face of this: ie a deceleration in rental growth whilst the OC real estate situation worsens. If true, there may be other local factors over-riding. For example the employment situation may have worsened significantly in the last year enough to outweigh the normal pattern; but I doubt it.

But frankly rental is a poorly researched subject everywhere because big business is not involved or interested, it is not a major cog in economic models and the data sources are poor.

It is one of those few areas in which an individual amateur analyst could make a big impact.

[Author]

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