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

[(former)FormerSanDiegan]

What could cause a rental bubble ?

It’s not as though speculation would lead to higher rents.
What mechanism could cause a bubble in rent ?

It seems to me that rent is probably more firmly grounded in market fundamentals than prices. That goes for both commercial and residential. It’s driven by supply and demand.

As for the discrepancy in incomes and rents, doesn’t the 17% increase from 2000 to 2001 seem suspect ? Especially for the start of a recession. It seems to me that we need a longer time frame of data to make sense of this. Most of the “bubble” in rents is attributed to this strange jump. Perhaps the metric changed or they use models and adjust it with census data.

[surveyor]

bubbles

True, rents do not lend themselves to bubbbles very well – they are usually the side effect to a major bubble.

For example, the Japanese buying splurge of the 80’s caused rents to go up in certain places (California, Hawaii and Guam). After the Japanese financial crash, rents went down to normal.

The Internet bubble caused Bay area rents to go up. After the crash, asking rents were lowered.

I’ve been seeing some talk of a rent bubble in New Orleans, simply because of the destruction of affordable housing.

Anyways, unless there is some sort of bubble in Orange County causing rents to go up as a side effect, I would say it’s simply demand for more affordable units due to the increase in foreclosures. From what I’ve been seeing, the economy in Orange County is not excessively down, it is more or less on track with the national. With people fleeing home ownership and unwilling to flee the area in combination with the low amount of rental housing, they have no choice but to ante up for higher rents.

Besides, rents going 10% or even 15% out of whack is not considered a “bubble”.

I mean, heck, you might as well attribute the rise in rents to the Lakers being deep in the playoffs this year.

[surveyor]

bubbles

True, rents do not lend themselves to bubbbles very well – they are usually the side effect to a major bubble.

For example, the Japanese buying splurge of the 80’s caused rents to go up in certain places (California, Hawaii and Guam). After the Japanese financial crash, rents went down to normal.

The Internet bubble caused Bay area rents to go up. After the crash, asking rents were lowered.

I’ve been seeing some talk of a rent bubble in New Orleans, simply because of the destruction of affordable housing.

Anyways, unless there is some sort of bubble in Orange County causing rents to go up as a side effect, I would say it’s simply demand for more affordable units due to the increase in foreclosures. From what I’ve been seeing, the economy in Orange County is not excessively down, it is more or less on track with the national. With people fleeing home ownership and unwilling to flee the area in combination with the low amount of rental housing, they have no choice but to ante up for higher rents.

Besides, rents going 10% or even 15% out of whack is not considered a “bubble”.

I mean, heck, you might as well attribute the rise in rents to the Lakers being deep in the playoffs this year.

[surveyor]

bubbles

True, rents do not lend themselves to bubbbles very well – they are usually the side effect to a major bubble.

For example, the Japanese buying splurge of the 80’s caused rents to go up in certain places (California, Hawaii and Guam). After the Japanese financial crash, rents went down to normal.

The Internet bubble caused Bay area rents to go up. After the crash, asking rents were lowered.

I’ve been seeing some talk of a rent bubble in New Orleans, simply because of the destruction of affordable housing.

Anyways, unless there is some sort of bubble in Orange County causing rents to go up as a side effect, I would say it’s simply demand for more affordable units due to the increase in foreclosures. From what I’ve been seeing, the economy in Orange County is not excessively down, it is more or less on track with the national. With people fleeing home ownership and unwilling to flee the area in combination with the low amount of rental housing, they have no choice but to ante up for higher rents.

Besides, rents going 10% or even 15% out of whack is not considered a “bubble”.

I mean, heck, you might as well attribute the rise in rents to the Lakers being deep in the playoffs this year.

[surveyor]

bubbles

True, rents do not lend themselves to bubbbles very well – they are usually the side effect to a major bubble.

For example, the Japanese buying splurge of the 80’s caused rents to go up in certain places (California, Hawaii and Guam). After the Japanese financial crash, rents went down to normal.

The Internet bubble caused Bay area rents to go up. After the crash, asking rents were lowered.

I’ve been seeing some talk of a rent bubble in New Orleans, simply because of the destruction of affordable housing.

Anyways, unless there is some sort of bubble in Orange County causing rents to go up as a side effect, I would say it’s simply demand for more affordable units due to the increase in foreclosures. From what I’ve been seeing, the economy in Orange County is not excessively down, it is more or less on track with the national. With people fleeing home ownership and unwilling to flee the area in combination with the low amount of rental housing, they have no choice but to ante up for higher rents.

Besides, rents going 10% or even 15% out of whack is not considered a “bubble”.

I mean, heck, you might as well attribute the rise in rents to the Lakers being deep in the playoffs this year.

[surveyor]

bubbles

True, rents do not lend themselves to bubbbles very well – they are usually the side effect to a major bubble.

For example, the Japanese buying splurge of the 80’s caused rents to go up in certain places (California, Hawaii and Guam). After the Japanese financial crash, rents went down to normal.

The Internet bubble caused Bay area rents to go up. After the crash, asking rents were lowered.

I’ve been seeing some talk of a rent bubble in New Orleans, simply because of the destruction of affordable housing.

Anyways, unless there is some sort of bubble in Orange County causing rents to go up as a side effect, I would say it’s simply demand for more affordable units due to the increase in foreclosures. From what I’ve been seeing, the economy in Orange County is not excessively down, it is more or less on track with the national. With people fleeing home ownership and unwilling to flee the area in combination with the low amount of rental housing, they have no choice but to ante up for higher rents.

Besides, rents going 10% or even 15% out of whack is not considered a “bubble”.

I mean, heck, you might as well attribute the rise in rents to the Lakers being deep in the playoffs this year.

[CA renter]

What could cause a rent bubble ?

——————–
1. Houses being kept off the market by flippers (then) and banks (now) who are holding inventory off the market, in the hopes that the market gets better (or the govt will buy their properties?).

2. Housing prices rising to such an extent that asking rents, in general, go up to compensate for losses (like the OP’s family member). Tons of newly-minted LLs charging crazy rents…they’ll experience very high turn-over and costs because of this, IMHO.

3. A ramped-up housing boom (and concurrent spending boom due to equity extraction), which leads to more immigrant laborers coming to the U.S. looking for work. Many of these immigrants are willing to live in denser conditions, so they can techically “afford” very high rents if they have multiple incomes, even if each adult is only paying a few hundred dollars/month.
————————

What can cause the rent “bubble” to burst?

1. Banks might be forced by regulators to get rid of their housing inventory, once it’s determined that the market is not coming back any time soon. Also, as flippers realize the market isn’t returning, and let go of their negative cash flow “investments”.

2. As PITI payments begin to reach parity with rents, more investors will buy, putting more rental inventory on the market, forcing rents down.

3. As the economy and housing markets decline, immigrants return to their own countries, leaving more rental supply on the market. Don’t discount the anti-immigration policies which tend to occur with severe economic downturns (we experienced this during the Great Depression, though it’s not talked about much).

4. As mentioned above, as the economy contracts, people will begin taking on more roommates and moving back with family members (lots of Boomers still living in 4/2s with empty bedrooms).

[CA renter]

What could cause a rent bubble ?

——————–
1. Houses being kept off the market by flippers (then) and banks (now) who are holding inventory off the market, in the hopes that the market gets better (or the govt will buy their properties?).

2. Housing prices rising to such an extent that asking rents, in general, go up to compensate for losses (like the OP’s family member). Tons of newly-minted LLs charging crazy rents…they’ll experience very high turn-over and costs because of this, IMHO.

3. A ramped-up housing boom (and concurrent spending boom due to equity extraction), which leads to more immigrant laborers coming to the U.S. looking for work. Many of these immigrants are willing to live in denser conditions, so they can techically “afford” very high rents if they have multiple incomes, even if each adult is only paying a few hundred dollars/month.
————————

What can cause the rent “bubble” to burst?

1. Banks might be forced by regulators to get rid of their housing inventory, once it’s determined that the market is not coming back any time soon. Also, as flippers realize the market isn’t returning, and let go of their negative cash flow “investments”.

2. As PITI payments begin to reach parity with rents, more investors will buy, putting more rental inventory on the market, forcing rents down.

3. As the economy and housing markets decline, immigrants return to their own countries, leaving more rental supply on the market. Don’t discount the anti-immigration policies which tend to occur with severe economic downturns (we experienced this during the Great Depression, though it’s not talked about much).

4. As mentioned above, as the economy contracts, people will begin taking on more roommates and moving back with family members (lots of Boomers still living in 4/2s with empty bedrooms).

[CA renter]

What could cause a rent bubble ?

——————–
1. Houses being kept off the market by flippers (then) and banks (now) who are holding inventory off the market, in the hopes that the market gets better (or the govt will buy their properties?).

2. Housing prices rising to such an extent that asking rents, in general, go up to compensate for losses (like the OP’s family member). Tons of newly-minted LLs charging crazy rents…they’ll experience very high turn-over and costs because of this, IMHO.

3. A ramped-up housing boom (and concurrent spending boom due to equity extraction), which leads to more immigrant laborers coming to the U.S. looking for work. Many of these immigrants are willing to live in denser conditions, so they can techically “afford” very high rents if they have multiple incomes, even if each adult is only paying a few hundred dollars/month.
————————

What can cause the rent “bubble” to burst?

1. Banks might be forced by regulators to get rid of their housing inventory, once it’s determined that the market is not coming back any time soon. Also, as flippers realize the market isn’t returning, and let go of their negative cash flow “investments”.

2. As PITI payments begin to reach parity with rents, more investors will buy, putting more rental inventory on the market, forcing rents down.

3. As the economy and housing markets decline, immigrants return to their own countries, leaving more rental supply on the market. Don’t discount the anti-immigration policies which tend to occur with severe economic downturns (we experienced this during the Great Depression, though it’s not talked about much).

4. As mentioned above, as the economy contracts, people will begin taking on more roommates and moving back with family members (lots of Boomers still living in 4/2s with empty bedrooms).

[CA renter]

What could cause a rent bubble ?

——————–
1. Houses being kept off the market by flippers (then) and banks (now) who are holding inventory off the market, in the hopes that the market gets better (or the govt will buy their properties?).

2. Housing prices rising to such an extent that asking rents, in general, go up to compensate for losses (like the OP’s family member). Tons of newly-minted LLs charging crazy rents…they’ll experience very high turn-over and costs because of this, IMHO.

3. A ramped-up housing boom (and concurrent spending boom due to equity extraction), which leads to more immigrant laborers coming to the U.S. looking for work. Many of these immigrants are willing to live in denser conditions, so they can techically “afford” very high rents if they have multiple incomes, even if each adult is only paying a few hundred dollars/month.
————————

What can cause the rent “bubble” to burst?

1. Banks might be forced by regulators to get rid of their housing inventory, once it’s determined that the market is not coming back any time soon. Also, as flippers realize the market isn’t returning, and let go of their negative cash flow “investments”.

2. As PITI payments begin to reach parity with rents, more investors will buy, putting more rental inventory on the market, forcing rents down.

3. As the economy and housing markets decline, immigrants return to their own countries, leaving more rental supply on the market. Don’t discount the anti-immigration policies which tend to occur with severe economic downturns (we experienced this during the Great Depression, though it’s not talked about much).

4. As mentioned above, as the economy contracts, people will begin taking on more roommates and moving back with family members (lots of Boomers still living in 4/2s with empty bedrooms).

[CA renter]

What could cause a rent bubble ?

——————–
1. Houses being kept off the market by flippers (then) and banks (now) who are holding inventory off the market, in the hopes that the market gets better (or the govt will buy their properties?).

2. Housing prices rising to such an extent that asking rents, in general, go up to compensate for losses (like the OP’s family member). Tons of newly-minted LLs charging crazy rents…they’ll experience very high turn-over and costs because of this, IMHO.

3. A ramped-up housing boom (and concurrent spending boom due to equity extraction), which leads to more immigrant laborers coming to the U.S. looking for work. Many of these immigrants are willing to live in denser conditions, so they can techically “afford” very high rents if they have multiple incomes, even if each adult is only paying a few hundred dollars/month.
————————

What can cause the rent “bubble” to burst?

1. Banks might be forced by regulators to get rid of their housing inventory, once it’s determined that the market is not coming back any time soon. Also, as flippers realize the market isn’t returning, and let go of their negative cash flow “investments”.

2. As PITI payments begin to reach parity with rents, more investors will buy, putting more rental inventory on the market, forcing rents down.

3. As the economy and housing markets decline, immigrants return to their own countries, leaving more rental supply on the market. Don’t discount the anti-immigration policies which tend to occur with severe economic downturns (we experienced this during the Great Depression, though it’s not talked about much).

4. As mentioned above, as the economy contracts, people will begin taking on more roommates and moving back with family members (lots of Boomers still living in 4/2s with empty bedrooms).

[Rich Toscano]

Well said, CA Renter. While I personally would not use the term “bubble” (as to me that connotes a speculative element), I think rents can overshoot sustainable levels(and probably have).

I think #2 in the first list is especially important. If one landlord tries to get higher rent because his carrying costs are higher, he’s out of luck. But if the carrying costs for the entire city go up in aggregate, then asking rents will go up in aggregate too.

Rents declined during the last downturn — this surely was exacerbated by the job losses but the decline in landlord carrying costs might have been a factor too. For the various reasons outlined in other posts, I suspect that rents will stagnate or decline in inflation-adjusted terms.

Rich

[Rich Toscano]

Well said, CA Renter. While I personally would not use the term “bubble” (as to me that connotes a speculative element), I think rents can overshoot sustainable levels(and probably have).

I think #2 in the first list is especially important. If one landlord tries to get higher rent because his carrying costs are higher, he’s out of luck. But if the carrying costs for the entire city go up in aggregate, then asking rents will go up in aggregate too.

Rents declined during the last downturn — this surely was exacerbated by the job losses but the decline in landlord carrying costs might have been a factor too. For the various reasons outlined in other posts, I suspect that rents will stagnate or decline in inflation-adjusted terms.

Rich

[Rich Toscano]

Well said, CA Renter. While I personally would not use the term “bubble” (as to me that connotes a speculative element), I think rents can overshoot sustainable levels(and probably have).

I think #2 in the first list is especially important. If one landlord tries to get higher rent because his carrying costs are higher, he’s out of luck. But if the carrying costs for the entire city go up in aggregate, then asking rents will go up in aggregate too.

Rents declined during the last downturn — this surely was exacerbated by the job losses but the decline in landlord carrying costs might have been a factor too. For the various reasons outlined in other posts, I suspect that rents will stagnate or decline in inflation-adjusted terms.

Rich

[Rich Toscano]

Well said, CA Renter. While I personally would not use the term “bubble” (as to me that connotes a speculative element), I think rents can overshoot sustainable levels(and probably have).

I think #2 in the first list is especially important. If one landlord tries to get higher rent because his carrying costs are higher, he’s out of luck. But if the carrying costs for the entire city go up in aggregate, then asking rents will go up in aggregate too.

Rents declined during the last downturn — this surely was exacerbated by the job losses but the decline in landlord carrying costs might have been a factor too. For the various reasons outlined in other posts, I suspect that rents will stagnate or decline in inflation-adjusted terms.

Rich

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