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

[surveyor]

more rents

Rents aren’t usually susceptible to a bubble and any bubble they do enter tend to be small. The 10% overpriced sounds about right. If rent prices for a certain area enters a bubble, it is usually due to something unusual – one example would be when rents skyrocketed in the Bay area due to the Internet bubble. It proved to be temporary and when it crashed, rents went down as well.

I don’t know personally what’s going on in Orange County that would make rents go up drastically. What I have been seeing here in San Diego is that rents have been going up, because more former owners are becoming renters. While there have been buyers (former renters becoming homeowners) the trend has not been large enough to offset the former owners. As a result, there has been a larger demand for affordable rental units. As a result, those affordable units have been able to increase their prices.

Many people have assumed that as foreclosures increase, that there would be a reduction in rental prices. I have always said that this is a false assumption. What has been happening is that there is a large amount of houses empty due to foreclosures, very few people are buying them, and most people are opting to rent instead of buy. This activity has had the effect of putting pressure on rentals, allowing for price increases. Foreclosures have to be bought and converted by investors into viable rental units first and until they start doing so in huge numbers, do not expect rents to go down. While there has been some investor activity, the effect has been minimal.

My guess is that in order for rents to be decreased, you would have to see a large increase in sales first, heralding the end of the bubble bust. Or of course, the worsening of the economy. That always does the job.

[Anonymous]

This makes a lot of sense to me. There are a lot of vacant condos and homes in my area. Those people have to go somewhere.

Unfortunately I am a renter stuck in the middle, pretty content until that dreaded phone call telling us the owner got into deep water. Interestingly, they pressured us to buy in a short sale, but we declined.

Thank you La Jolla Renter for your encouraging advice. I would also agree that renters who stay put seem to have very small rent increases, if at all. It’s not until you have to move that you are dealing with higher prices. A friend of mine recently decided she wanted a new apartment with more amenities (a dishwasher and W/D…small things really). She was prepared to pay more for those conveniences, but when she saw just how much more, she decided not to move.

All in all, we are very fortunate to be renting and to have that flexibility, but I won’t be jumping for joy if we wind up paying more or moving yet farther North… pretty soon we’ll be in Temecula at this rate! (no offense Temecula, it is just too far for me to drive!)

[Anonymous]

This makes a lot of sense to me. There are a lot of vacant condos and homes in my area. Those people have to go somewhere.

Unfortunately I am a renter stuck in the middle, pretty content until that dreaded phone call telling us the owner got into deep water. Interestingly, they pressured us to buy in a short sale, but we declined.

Thank you La Jolla Renter for your encouraging advice. I would also agree that renters who stay put seem to have very small rent increases, if at all. It’s not until you have to move that you are dealing with higher prices. A friend of mine recently decided she wanted a new apartment with more amenities (a dishwasher and W/D…small things really). She was prepared to pay more for those conveniences, but when she saw just how much more, she decided not to move.

All in all, we are very fortunate to be renting and to have that flexibility, but I won’t be jumping for joy if we wind up paying more or moving yet farther North… pretty soon we’ll be in Temecula at this rate! (no offense Temecula, it is just too far for me to drive!)

[Anonymous]

This makes a lot of sense to me. There are a lot of vacant condos and homes in my area. Those people have to go somewhere.

Unfortunately I am a renter stuck in the middle, pretty content until that dreaded phone call telling us the owner got into deep water. Interestingly, they pressured us to buy in a short sale, but we declined.

Thank you La Jolla Renter for your encouraging advice. I would also agree that renters who stay put seem to have very small rent increases, if at all. It’s not until you have to move that you are dealing with higher prices. A friend of mine recently decided she wanted a new apartment with more amenities (a dishwasher and W/D…small things really). She was prepared to pay more for those conveniences, but when she saw just how much more, she decided not to move.

All in all, we are very fortunate to be renting and to have that flexibility, but I won’t be jumping for joy if we wind up paying more or moving yet farther North… pretty soon we’ll be in Temecula at this rate! (no offense Temecula, it is just too far for me to drive!)

[Anonymous]

This makes a lot of sense to me. There are a lot of vacant condos and homes in my area. Those people have to go somewhere.

Unfortunately I am a renter stuck in the middle, pretty content until that dreaded phone call telling us the owner got into deep water. Interestingly, they pressured us to buy in a short sale, but we declined.

Thank you La Jolla Renter for your encouraging advice. I would also agree that renters who stay put seem to have very small rent increases, if at all. It’s not until you have to move that you are dealing with higher prices. A friend of mine recently decided she wanted a new apartment with more amenities (a dishwasher and W/D…small things really). She was prepared to pay more for those conveniences, but when she saw just how much more, she decided not to move.

All in all, we are very fortunate to be renting and to have that flexibility, but I won’t be jumping for joy if we wind up paying more or moving yet farther North… pretty soon we’ll be in Temecula at this rate! (no offense Temecula, it is just too far for me to drive!)

[Anonymous]

This makes a lot of sense to me. There are a lot of vacant condos and homes in my area. Those people have to go somewhere.

Unfortunately I am a renter stuck in the middle, pretty content until that dreaded phone call telling us the owner got into deep water. Interestingly, they pressured us to buy in a short sale, but we declined.

Thank you La Jolla Renter for your encouraging advice. I would also agree that renters who stay put seem to have very small rent increases, if at all. It’s not until you have to move that you are dealing with higher prices. A friend of mine recently decided she wanted a new apartment with more amenities (a dishwasher and W/D…small things really). She was prepared to pay more for those conveniences, but when she saw just how much more, she decided not to move.

All in all, we are very fortunate to be renting and to have that flexibility, but I won’t be jumping for joy if we wind up paying more or moving yet farther North… pretty soon we’ll be in Temecula at this rate! (no offense Temecula, it is just too far for me to drive!)

[EconProf]

BobS
Rents are a market price, and as such are set by supply and demand. One the supply side is the current stock of vacant houses and apartments; on the demand side are the current searchers.
The vacancy rate is the best predictor of future rent trends, with rates below 5% stimulating rent increases above prevailing inflation rates. Vacancy rates of above 8 – 10% will likely halt any rise in rents. San Diego’s vacancy rate is now about 5%, up from about 3 1/2 percent a year or two ago.
Residential rents move with glacial speed for several reasons. Landlords correctly hate vacancies, so tenants sometimes go for years with small or no rent increases, even though the landlords’ expenses go up with inflation. This makes it a good deal for tenants who stay put.
Very seldom do rents increase rapidly. In rare circumstances such as in the dot-com era in the Bay area, they rose rapidly, as was predicted by the rock-bottom vacancy rate first. After the bust they fell, but not to previous levels.
Rents rarely fall, and then by very little. In San Diego’s deep early 1990s recession when our high-paying jobs dried up and people fled SoCal rents barely fell. Landlords understandably want to avoid actual rent cuts–hard to come back later and ask for hikes. Plus, how do apartment building owners offer lower rents to newcomers without cutting rents to existing tenants? As a result, the effective cost of such a policy would be huge. Better to disguise the rent decrease by offering 13th month free on a one-year lease or some such subtrefuge.
Look for San Diego’s rents to rise about the rate of inflation for the forseeable future. Any other result will be preceeded by a marked change in the vacancy rate. It is purely a free market phenomenon.

[EconProf]

BobS
Rents are a market price, and as such are set by supply and demand. One the supply side is the current stock of vacant houses and apartments; on the demand side are the current searchers.
The vacancy rate is the best predictor of future rent trends, with rates below 5% stimulating rent increases above prevailing inflation rates. Vacancy rates of above 8 – 10% will likely halt any rise in rents. San Diego’s vacancy rate is now about 5%, up from about 3 1/2 percent a year or two ago.
Residential rents move with glacial speed for several reasons. Landlords correctly hate vacancies, so tenants sometimes go for years with small or no rent increases, even though the landlords’ expenses go up with inflation. This makes it a good deal for tenants who stay put.
Very seldom do rents increase rapidly. In rare circumstances such as in the dot-com era in the Bay area, they rose rapidly, as was predicted by the rock-bottom vacancy rate first. After the bust they fell, but not to previous levels.
Rents rarely fall, and then by very little. In San Diego’s deep early 1990s recession when our high-paying jobs dried up and people fled SoCal rents barely fell. Landlords understandably want to avoid actual rent cuts–hard to come back later and ask for hikes. Plus, how do apartment building owners offer lower rents to newcomers without cutting rents to existing tenants? As a result, the effective cost of such a policy would be huge. Better to disguise the rent decrease by offering 13th month free on a one-year lease or some such subtrefuge.
Look for San Diego’s rents to rise about the rate of inflation for the forseeable future. Any other result will be preceeded by a marked change in the vacancy rate. It is purely a free market phenomenon.

[EconProf]

BobS
Rents are a market price, and as such are set by supply and demand. One the supply side is the current stock of vacant houses and apartments; on the demand side are the current searchers.
The vacancy rate is the best predictor of future rent trends, with rates below 5% stimulating rent increases above prevailing inflation rates. Vacancy rates of above 8 – 10% will likely halt any rise in rents. San Diego’s vacancy rate is now about 5%, up from about 3 1/2 percent a year or two ago.
Residential rents move with glacial speed for several reasons. Landlords correctly hate vacancies, so tenants sometimes go for years with small or no rent increases, even though the landlords’ expenses go up with inflation. This makes it a good deal for tenants who stay put.
Very seldom do rents increase rapidly. In rare circumstances such as in the dot-com era in the Bay area, they rose rapidly, as was predicted by the rock-bottom vacancy rate first. After the bust they fell, but not to previous levels.
Rents rarely fall, and then by very little. In San Diego’s deep early 1990s recession when our high-paying jobs dried up and people fled SoCal rents barely fell. Landlords understandably want to avoid actual rent cuts–hard to come back later and ask for hikes. Plus, how do apartment building owners offer lower rents to newcomers without cutting rents to existing tenants? As a result, the effective cost of such a policy would be huge. Better to disguise the rent decrease by offering 13th month free on a one-year lease or some such subtrefuge.
Look for San Diego’s rents to rise about the rate of inflation for the forseeable future. Any other result will be preceeded by a marked change in the vacancy rate. It is purely a free market phenomenon.

[EconProf]

BobS
Rents are a market price, and as such are set by supply and demand. One the supply side is the current stock of vacant houses and apartments; on the demand side are the current searchers.
The vacancy rate is the best predictor of future rent trends, with rates below 5% stimulating rent increases above prevailing inflation rates. Vacancy rates of above 8 – 10% will likely halt any rise in rents. San Diego’s vacancy rate is now about 5%, up from about 3 1/2 percent a year or two ago.
Residential rents move with glacial speed for several reasons. Landlords correctly hate vacancies, so tenants sometimes go for years with small or no rent increases, even though the landlords’ expenses go up with inflation. This makes it a good deal for tenants who stay put.
Very seldom do rents increase rapidly. In rare circumstances such as in the dot-com era in the Bay area, they rose rapidly, as was predicted by the rock-bottom vacancy rate first. After the bust they fell, but not to previous levels.
Rents rarely fall, and then by very little. In San Diego’s deep early 1990s recession when our high-paying jobs dried up and people fled SoCal rents barely fell. Landlords understandably want to avoid actual rent cuts–hard to come back later and ask for hikes. Plus, how do apartment building owners offer lower rents to newcomers without cutting rents to existing tenants? As a result, the effective cost of such a policy would be huge. Better to disguise the rent decrease by offering 13th month free on a one-year lease or some such subtrefuge.
Look for San Diego’s rents to rise about the rate of inflation for the forseeable future. Any other result will be preceeded by a marked change in the vacancy rate. It is purely a free market phenomenon.

[EconProf]

BobS
Rents are a market price, and as such are set by supply and demand. One the supply side is the current stock of vacant houses and apartments; on the demand side are the current searchers.
The vacancy rate is the best predictor of future rent trends, with rates below 5% stimulating rent increases above prevailing inflation rates. Vacancy rates of above 8 – 10% will likely halt any rise in rents. San Diego’s vacancy rate is now about 5%, up from about 3 1/2 percent a year or two ago.
Residential rents move with glacial speed for several reasons. Landlords correctly hate vacancies, so tenants sometimes go for years with small or no rent increases, even though the landlords’ expenses go up with inflation. This makes it a good deal for tenants who stay put.
Very seldom do rents increase rapidly. In rare circumstances such as in the dot-com era in the Bay area, they rose rapidly, as was predicted by the rock-bottom vacancy rate first. After the bust they fell, but not to previous levels.
Rents rarely fall, and then by very little. In San Diego’s deep early 1990s recession when our high-paying jobs dried up and people fled SoCal rents barely fell. Landlords understandably want to avoid actual rent cuts–hard to come back later and ask for hikes. Plus, how do apartment building owners offer lower rents to newcomers without cutting rents to existing tenants? As a result, the effective cost of such a policy would be huge. Better to disguise the rent decrease by offering 13th month free on a one-year lease or some such subtrefuge.
Look for San Diego’s rents to rise about the rate of inflation for the forseeable future. Any other result will be preceeded by a marked change in the vacancy rate. It is purely a free market phenomenon.

[bjensen]

I understand that rents are set by supply and demand.

However, I can’t help but wonder if what happened in the mortgage market didn’t increase demand in Southern California over the past 8 years.

The only thing I can think is that there were enough rational and honest people that preferred to rent vs. buy even if they were able to buy to fill in the spots opened up by people who had no business buying homes and then some. I know a lot of people my age put off purchases as they graduated college even though they could technically “afford” (i.e. qualify) for a mortgage.

I don’t have any data to back any of this up. I don’t know what demand was 8 years ago. But I do know that there were sharp increases that outstripped the increase of local incomes for Orange County.

I just don’t know if I trust history to tell me that rents don’t go down, and if they do, they only go down slightly. It wasn’t a few years ago the mantra was that house prices never go down as well. So much for that theory.

BobS, do you believe that barring a strong recession that there is no chance of decreased rents going forward? Would you then consider real estate fairly priced when rent is equal to the mortgage on a property?

Who here would buy a personal residence when rent equals the cost of a mortgage for a similar property? Who would hold out for further price reductions?

[bjensen]

I understand that rents are set by supply and demand.

However, I can’t help but wonder if what happened in the mortgage market didn’t increase demand in Southern California over the past 8 years.

The only thing I can think is that there were enough rational and honest people that preferred to rent vs. buy even if they were able to buy to fill in the spots opened up by people who had no business buying homes and then some. I know a lot of people my age put off purchases as they graduated college even though they could technically “afford” (i.e. qualify) for a mortgage.

I don’t have any data to back any of this up. I don’t know what demand was 8 years ago. But I do know that there were sharp increases that outstripped the increase of local incomes for Orange County.

I just don’t know if I trust history to tell me that rents don’t go down, and if they do, they only go down slightly. It wasn’t a few years ago the mantra was that house prices never go down as well. So much for that theory.

BobS, do you believe that barring a strong recession that there is no chance of decreased rents going forward? Would you then consider real estate fairly priced when rent is equal to the mortgage on a property?

Who here would buy a personal residence when rent equals the cost of a mortgage for a similar property? Who would hold out for further price reductions?

[bjensen]

I understand that rents are set by supply and demand.

However, I can’t help but wonder if what happened in the mortgage market didn’t increase demand in Southern California over the past 8 years.

The only thing I can think is that there were enough rational and honest people that preferred to rent vs. buy even if they were able to buy to fill in the spots opened up by people who had no business buying homes and then some. I know a lot of people my age put off purchases as they graduated college even though they could technically “afford” (i.e. qualify) for a mortgage.

I don’t have any data to back any of this up. I don’t know what demand was 8 years ago. But I do know that there were sharp increases that outstripped the increase of local incomes for Orange County.

I just don’t know if I trust history to tell me that rents don’t go down, and if they do, they only go down slightly. It wasn’t a few years ago the mantra was that house prices never go down as well. So much for that theory.

BobS, do you believe that barring a strong recession that there is no chance of decreased rents going forward? Would you then consider real estate fairly priced when rent is equal to the mortgage on a property?

Who here would buy a personal residence when rent equals the cost of a mortgage for a similar property? Who would hold out for further price reductions?

[bjensen]

I understand that rents are set by supply and demand.

However, I can’t help but wonder if what happened in the mortgage market didn’t increase demand in Southern California over the past 8 years.

The only thing I can think is that there were enough rational and honest people that preferred to rent vs. buy even if they were able to buy to fill in the spots opened up by people who had no business buying homes and then some. I know a lot of people my age put off purchases as they graduated college even though they could technically “afford” (i.e. qualify) for a mortgage.

I don’t have any data to back any of this up. I don’t know what demand was 8 years ago. But I do know that there were sharp increases that outstripped the increase of local incomes for Orange County.

I just don’t know if I trust history to tell me that rents don’t go down, and if they do, they only go down slightly. It wasn’t a few years ago the mantra was that house prices never go down as well. So much for that theory.

BobS, do you believe that barring a strong recession that there is no chance of decreased rents going forward? Would you then consider real estate fairly priced when rent is equal to the mortgage on a property?

Who here would buy a personal residence when rent equals the cost of a mortgage for a similar property? Who would hold out for further price reductions?

[Author]

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