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

[(former)FormerSanDiegan]

Thanks surveyor and CA renter for some excellent explanations of mechanisms for changes in rent, including some driven by speculation in other parts of the economy. I believe that all of these are inherently supply/demand related. Though some mechanisms are caused by other bubbles (excessive speculation).
So, I agree that rents may be driven upward by speculation or excesses in other parts of the economy (e.g. excessive jobs created by venture capital during the dot-com boom), but there really is no rent bubble, in the same sense that there was a stock bubble in the late 1990’s and real estate bubble in the mid 2000’s.

[CricketOnTheHearth]

I have also experienced a widening rent/income gap.

This post has stuck in my mind for several days, and as a reality check I went back and looked at my pay slips and lease agreements for 2001, the last time I was financially “comfortable”.

I found that at that time, my rent was some 23% of my gross income.

Fast forward to today, my pay is 111% what it was in 2001 (i.e., it has risen 11% in the past 7 years). Meanwhile, the very same apartment I used to live in, is now nearly 150% the rent– it went from $1090 to $1515. If I rented there today, I would be spending 30% of my gross income on rent, or literally half my take-home pay.

. . .

My (extremely rough) rule of thumb is that $600 in monthly payment is roughly equivalent to $100,000 in house price, for a 30-year fixed mortgage. When I apply this rule to a published rent, I get an estimate of “what the rent says the house is worth”. Rents in RB currently imply home values of $250,000 for 2-bedroom condos, and $400,000 for single-family homes. Actual condos in RB are being listed in this neighborhood now (mostly by the converted complexes and the builders). Houses have a ways to go on this.

But if prices of houses and condos were to more truly fall back into line with incomes, where they were in 2001, they would have to fall to $181,000 for the 2BR condos not counting HOA fees, and probably more like $140,000 assuming a (low) HOA of $250. I neglect the property tax here, because with the federal income tax deduction for mortgage interest, for a new buyer the tax gain and the property tax are about a wash.

Who knows if prices and rents will actually ever fall to reasonable ratios vs incomes; I guess we will see.

>chirp<

[CricketOnTheHearth]

I have also experienced a widening rent/income gap.

This post has stuck in my mind for several days, and as a reality check I went back and looked at my pay slips and lease agreements for 2001, the last time I was financially “comfortable”.

I found that at that time, my rent was some 23% of my gross income.

Fast forward to today, my pay is 111% what it was in 2001 (i.e., it has risen 11% in the past 7 years). Meanwhile, the very same apartment I used to live in, is now nearly 150% the rent– it went from $1090 to $1515. If I rented there today, I would be spending 30% of my gross income on rent, or literally half my take-home pay.

. . .

My (extremely rough) rule of thumb is that $600 in monthly payment is roughly equivalent to $100,000 in house price, for a 30-year fixed mortgage. When I apply this rule to a published rent, I get an estimate of “what the rent says the house is worth”. Rents in RB currently imply home values of $250,000 for 2-bedroom condos, and $400,000 for single-family homes. Actual condos in RB are being listed in this neighborhood now (mostly by the converted complexes and the builders). Houses have a ways to go on this.

But if prices of houses and condos were to more truly fall back into line with incomes, where they were in 2001, they would have to fall to $181,000 for the 2BR condos not counting HOA fees, and probably more like $140,000 assuming a (low) HOA of $250. I neglect the property tax here, because with the federal income tax deduction for mortgage interest, for a new buyer the tax gain and the property tax are about a wash.

Who knows if prices and rents will actually ever fall to reasonable ratios vs incomes; I guess we will see.

>chirp<

[CricketOnTheHearth]

I have also experienced a widening rent/income gap.

This post has stuck in my mind for several days, and as a reality check I went back and looked at my pay slips and lease agreements for 2001, the last time I was financially “comfortable”.

I found that at that time, my rent was some 23% of my gross income.

Fast forward to today, my pay is 111% what it was in 2001 (i.e., it has risen 11% in the past 7 years). Meanwhile, the very same apartment I used to live in, is now nearly 150% the rent– it went from $1090 to $1515. If I rented there today, I would be spending 30% of my gross income on rent, or literally half my take-home pay.

. . .

My (extremely rough) rule of thumb is that $600 in monthly payment is roughly equivalent to $100,000 in house price, for a 30-year fixed mortgage. When I apply this rule to a published rent, I get an estimate of “what the rent says the house is worth”. Rents in RB currently imply home values of $250,000 for 2-bedroom condos, and $400,000 for single-family homes. Actual condos in RB are being listed in this neighborhood now (mostly by the converted complexes and the builders). Houses have a ways to go on this.

But if prices of houses and condos were to more truly fall back into line with incomes, where they were in 2001, they would have to fall to $181,000 for the 2BR condos not counting HOA fees, and probably more like $140,000 assuming a (low) HOA of $250. I neglect the property tax here, because with the federal income tax deduction for mortgage interest, for a new buyer the tax gain and the property tax are about a wash.

Who knows if prices and rents will actually ever fall to reasonable ratios vs incomes; I guess we will see.

>chirp<

[CricketOnTheHearth]

I have also experienced a widening rent/income gap.

This post has stuck in my mind for several days, and as a reality check I went back and looked at my pay slips and lease agreements for 2001, the last time I was financially “comfortable”.

I found that at that time, my rent was some 23% of my gross income.

Fast forward to today, my pay is 111% what it was in 2001 (i.e., it has risen 11% in the past 7 years). Meanwhile, the very same apartment I used to live in, is now nearly 150% the rent– it went from $1090 to $1515. If I rented there today, I would be spending 30% of my gross income on rent, or literally half my take-home pay.

. . .

My (extremely rough) rule of thumb is that $600 in monthly payment is roughly equivalent to $100,000 in house price, for a 30-year fixed mortgage. When I apply this rule to a published rent, I get an estimate of “what the rent says the house is worth”. Rents in RB currently imply home values of $250,000 for 2-bedroom condos, and $400,000 for single-family homes. Actual condos in RB are being listed in this neighborhood now (mostly by the converted complexes and the builders). Houses have a ways to go on this.

But if prices of houses and condos were to more truly fall back into line with incomes, where they were in 2001, they would have to fall to $181,000 for the 2BR condos not counting HOA fees, and probably more like $140,000 assuming a (low) HOA of $250. I neglect the property tax here, because with the federal income tax deduction for mortgage interest, for a new buyer the tax gain and the property tax are about a wash.

Who knows if prices and rents will actually ever fall to reasonable ratios vs incomes; I guess we will see.

>chirp<

[CricketOnTheHearth]

I have also experienced a widening rent/income gap.

This post has stuck in my mind for several days, and as a reality check I went back and looked at my pay slips and lease agreements for 2001, the last time I was financially “comfortable”.

I found that at that time, my rent was some 23% of my gross income.

Fast forward to today, my pay is 111% what it was in 2001 (i.e., it has risen 11% in the past 7 years). Meanwhile, the very same apartment I used to live in, is now nearly 150% the rent– it went from $1090 to $1515. If I rented there today, I would be spending 30% of my gross income on rent, or literally half my take-home pay.

. . .

My (extremely rough) rule of thumb is that $600 in monthly payment is roughly equivalent to $100,000 in house price, for a 30-year fixed mortgage. When I apply this rule to a published rent, I get an estimate of “what the rent says the house is worth”. Rents in RB currently imply home values of $250,000 for 2-bedroom condos, and $400,000 for single-family homes. Actual condos in RB are being listed in this neighborhood now (mostly by the converted complexes and the builders). Houses have a ways to go on this.

But if prices of houses and condos were to more truly fall back into line with incomes, where they were in 2001, they would have to fall to $181,000 for the 2BR condos not counting HOA fees, and probably more like $140,000 assuming a (low) HOA of $250. I neglect the property tax here, because with the federal income tax deduction for mortgage interest, for a new buyer the tax gain and the property tax are about a wash.

Who knows if prices and rents will actually ever fall to reasonable ratios vs incomes; I guess we will see.

>chirp<

[surveyor]

hmmm…

The $1090 to $1515 reflects an increase of about 5.5% per year. A little on the high side, but certainly not altogether unreasonable, considering current vacancy rates.

I’ve been able to raise the rent myself on my two properties here in San Diego. I raised them 4%, but my raised rents are still below similar properties.

I’ve been putting out feelers to some mortgage brokers and realtors I know and asking them if they’ve been seeing any investor activity due to these lower prices. They’ve been telling me no. Until this investor activity increases, I don’t see rents going down, especially low cost rents.

I will say that there is some softness in the high end rents (rents above $2000) that I’ve been observing.

[surveyor]

hmmm…

The $1090 to $1515 reflects an increase of about 5.5% per year. A little on the high side, but certainly not altogether unreasonable, considering current vacancy rates.

I’ve been able to raise the rent myself on my two properties here in San Diego. I raised them 4%, but my raised rents are still below similar properties.

I’ve been putting out feelers to some mortgage brokers and realtors I know and asking them if they’ve been seeing any investor activity due to these lower prices. They’ve been telling me no. Until this investor activity increases, I don’t see rents going down, especially low cost rents.

I will say that there is some softness in the high end rents (rents above $2000) that I’ve been observing.

[surveyor]

hmmm…

The $1090 to $1515 reflects an increase of about 5.5% per year. A little on the high side, but certainly not altogether unreasonable, considering current vacancy rates.

I’ve been able to raise the rent myself on my two properties here in San Diego. I raised them 4%, but my raised rents are still below similar properties.

I’ve been putting out feelers to some mortgage brokers and realtors I know and asking them if they’ve been seeing any investor activity due to these lower prices. They’ve been telling me no. Until this investor activity increases, I don’t see rents going down, especially low cost rents.

I will say that there is some softness in the high end rents (rents above $2000) that I’ve been observing.

[surveyor]

hmmm…

The $1090 to $1515 reflects an increase of about 5.5% per year. A little on the high side, but certainly not altogether unreasonable, considering current vacancy rates.

I’ve been able to raise the rent myself on my two properties here in San Diego. I raised them 4%, but my raised rents are still below similar properties.

I’ve been putting out feelers to some mortgage brokers and realtors I know and asking them if they’ve been seeing any investor activity due to these lower prices. They’ve been telling me no. Until this investor activity increases, I don’t see rents going down, especially low cost rents.

I will say that there is some softness in the high end rents (rents above $2000) that I’ve been observing.

[surveyor]

hmmm…

The $1090 to $1515 reflects an increase of about 5.5% per year. A little on the high side, but certainly not altogether unreasonable, considering current vacancy rates.

I’ve been able to raise the rent myself on my two properties here in San Diego. I raised them 4%, but my raised rents are still below similar properties.

I’ve been putting out feelers to some mortgage brokers and realtors I know and asking them if they’ve been seeing any investor activity due to these lower prices. They’ve been telling me no. Until this investor activity increases, I don’t see rents going down, especially low cost rents.

I will say that there is some softness in the high end rents (rents above $2000) that I’ve been observing.

[bjensen]

Surveyor,

A 5.5% increase YOY doesn’t seem that extreme in times when incomes keep pace with cost of living, but I don’t think that is what the average renter has experienced in the last decade. I think a large cohort actually lost ground.

That’s what I find significant. I know that rents are normally a function of supply and demand, but I can’t help but think that there is a little wiggle room for rents to come down. I know that many properties are being held indefinitely at this point, but I can’t help but wonder if they will eventually become rentals and increase supply. I also wonder if demand will stagnate as 20-30 somethings opt to live at home in a down economic cycle and lower income households make do living in clown houses illegal immigrant style or simply move.

Who knows… I guess we will see.

[bjensen]

Surveyor,

A 5.5% increase YOY doesn’t seem that extreme in times when incomes keep pace with cost of living, but I don’t think that is what the average renter has experienced in the last decade. I think a large cohort actually lost ground.

That’s what I find significant. I know that rents are normally a function of supply and demand, but I can’t help but think that there is a little wiggle room for rents to come down. I know that many properties are being held indefinitely at this point, but I can’t help but wonder if they will eventually become rentals and increase supply. I also wonder if demand will stagnate as 20-30 somethings opt to live at home in a down economic cycle and lower income households make do living in clown houses illegal immigrant style or simply move.

Who knows… I guess we will see.

[bjensen]

Surveyor,

A 5.5% increase YOY doesn’t seem that extreme in times when incomes keep pace with cost of living, but I don’t think that is what the average renter has experienced in the last decade. I think a large cohort actually lost ground.

That’s what I find significant. I know that rents are normally a function of supply and demand, but I can’t help but think that there is a little wiggle room for rents to come down. I know that many properties are being held indefinitely at this point, but I can’t help but wonder if they will eventually become rentals and increase supply. I also wonder if demand will stagnate as 20-30 somethings opt to live at home in a down economic cycle and lower income households make do living in clown houses illegal immigrant style or simply move.

Who knows… I guess we will see.

[bjensen]

Surveyor,

A 5.5% increase YOY doesn’t seem that extreme in times when incomes keep pace with cost of living, but I don’t think that is what the average renter has experienced in the last decade. I think a large cohort actually lost ground.

That’s what I find significant. I know that rents are normally a function of supply and demand, but I can’t help but think that there is a little wiggle room for rents to come down. I know that many properties are being held indefinitely at this point, but I can’t help but wonder if they will eventually become rentals and increase supply. I also wonder if demand will stagnate as 20-30 somethings opt to live at home in a down economic cycle and lower income households make do living in clown houses illegal immigrant style or simply move.

Who knows… I guess we will see.

[Author]

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