An Ideal Time For Tenants
by the Mysterious Flying Miser
This time last year, one of the hottest debates on this blog was whether rents would rise or fall as a result of mass foreclosures. Let’s see what’s happening so far:
From AMEInfo :
“Apartment and villa rents have reported a sharp decline of 22 and 34% respectively in Q1 2009 in comparison to the prices in the fourth quarter of 2008, according to the Dubai report issued by Asteco, the UAE’s largest property services company. Commenting on the trend, Andrew Chambers, Asteco’s Managing Director, said ‘This is a positive development for house-hunters to either take up an attractive property on rent or buy as Dubai turns into a buyer-driven market. We are witnessing a high number of transaction activities, especially for finished units, as investors take advantage of attractive investment opportunities available in the city.’”
From BalkanTravellers.com:
“Pushed by the lack of clients, owners of office buildings in Romania are reducing their rent rates. The office rental prices are lowered by 20 per cent, in attempts to encourage clients to rent, especially if (they) are a solid company (that) would sign a long-term contract, representatives of the Eurometropola company told the Evenimentul Zilei newspaper.”
“Even though the average discount in office rental prices was 20 per cent last year, in attempts to find clients some owners have decreased their asking price by 35 per cent, according to the publication.”
“The rent decrease comes in the context of the overall fall in property prices in Romania. As BalkanTravellers.com reported in January, experts forecast a drop between 10 and 60 percent in real estate prices.”
From the Institute of Commercial Management:
“London rents have dropped the fastest in the UK this year – with City rents dropping a huge 19% … Matt Hutchinson, Director of Research at SpareRoom.co.uk, said ‘London rents have taken a serious blow in the past year, making it an ideal time for tenants on the hunt for a bargain. The financial crisis has claimed countless city high-fliers, and falling demand has seen rents in the borough plunge. Other wealthy boroughs such as Westminster and Richmond upon Thames have also been badly hit in the past 12 months. There’s been a huge increase in supply over the past 12 months, which has forced down rents. Existing flat-shares have been renting out additional rooms to save money, and the number of households taking in a lodger has also grown dramatically.’
“However, SpareRoom.co.uk has warned that the drop in prices is only temporary. The number of people looking to flat-share is on the increase, with the number of seekers per room rising to 2.4 (in June), up from 1.9 in April and 2.0 in May.
A report from The Real Estate Group, New York:
“Year-over-year comparisons show that prices are still lagging 2008 by as much as 12.30% in doorman one-bedroom units. On a month-to-month basis, however, rents are beginning to stabilize in most categories. The only category to post a decline this month (June 2009) was nondoorman two-bedroom units, which fell 2.56%.”
“Yet, while there has been some leveling off of asking rents over the past few months, demand does not appear to be enough to uplift rents as we’ve become accustomed to seeing in the summer months. Additionally we’ve noticed landlords that had been previously testing the market by removing tenant concessions, have added these incentives back into the mix this month.”
“I continue to caution landlords to carefully monitor their properties this summer and avoid being caught with excess inventory come fall. While Manhattan’s rental market may be showing some signs of improvement, these should not be interpreted as the road to recovery just yet.”
From Recordnet:
“Rent prices continue to drop in San Joaquin County because of the increasing number of foreclosure homes turned into rentals. The average rent for apartments countywide dropped 2.2 percent from $881 in the first quarter of 2008 to $862 in the first three months of this year, according to the latest quarterly apartments survey by RealFacts, a Novato research firm that tracks trends in the apartments industry.
“‘It’s too much supply and too little demand; just classic economics,’ said Terry Hull, whose Stockton-based family business Property Management Experts manages apartment complexes, duplexes, triplexes, and rental homes from Elk Grove to Fresno. ‘More and more investors have bought foreclosure houses in this area, the epicenter of the foreclosure market, and turned them into rentals at low-enough purchase prices that they can rent houses competitively against apartments. That permeates through the marketplace.’”
From Southern States:
“Ohio cropland and cash rents are anticipated to level off in 2009, and in some cases, decline slightly, according to results of the Ohio State University Extension 2009 Ohio Cropland Values and Cash Rents Survey.”
“‘High commodity prices and relatively low input costs drove up profits in 2007 and 2008, but this year is not the case. We are unlikely to see those profit margins in 2009,’ said Barry Ward, an Ohio State University Extension economist and production business management leader. ‘That’s going to put producers in a tough spot. Will they have made enough money in the last two years to weather the storm in 2009?”‘
“According to the survey, produced by university economists within the Department of Agricultural, Environmental, and Development Economics, Ohio cropland values are expected to decrease by 2.4 percent to 4.9 percent, while cash rents may level off or decrease slightly by 0.24 percent. In some cases, depending on the region and land productivity, cash rents could increase 1.24 percent.”
I’m begining to detect a trend…….
Skinny-legged jeans?
It looks like high or hyper inflation isn’t in the cards, at least not in the near future. The way govt cash spigots had been opened, I was fearing a return to double-digit annual inflation within a year or so. I now believe I was wrong; it looks like inflation is quite a ways farther over the horizon.
So I guess getting a weighted average return of just 3% (+ or -) on our cash isn’t that bad. We’re lucky in that we have a CD at our local credit union that allows unlimited additions while paying the original 5% interest rate on the entire balance. It doesn’t mature until 2012. So as other “investments” mature, the cash is going into this account.
After 2012 we’ll have to get creative.
I used to be on the fence of delfation vs inflation. I now agree that the trend is more deflationary as the losses in our economy far overshadow the fed printing and government stimulus.
Hi Sloth, are you new here? If so, welcome. I enjoy your snarkiness. I look forward to many months of successful zingers from your handle.
Thanks, Muggy. I left a longer post a while ago….I guess it’ll come thru here.
I remember going around and around with a HBBer on rents a year or two ago. He agreed that housing was overpriced, agreed that house prices would collapse, agreed that banks would be holding FC properties and would be forced to sell them at reduced prices and yet somehow came to the conclusion that rents would rise as this unfolded.
His theory if I recall correctly was a combination of displaced homeowners needing somewhere to live which would drive up rents and the notion that banks would sell to stronger hands who could afford to keep rents high.
Go figure.
Antecdotally, one of my customers who owns a 4 unit apartment building has seen 2 of his tenants move either back home or into another place split with a roomate. An instant 50% reduction in housing demand just like that.
To a large extent the whole fallback position of the bubble was “if these chumps default stronger hands will take over the property”. Didn’t quite work out. I guess all those “stronger hands” were bluffing too. Re-ante!
Wahoo,
Doesn’t sound like an HBBer - sounds like a troll. Opinion was pretty much unanimous in here that rents were going down, despite what NAR-affiliated “experts” would have you believe. Just one factor in softer rent prices has been, and will continue to be, the large numbers of FBs who were going to have to move back home or double up with family members, not to mention the “I rent my alligator crapbox at a loss until the market goes back up” involuntary landlords who are having to settle on rents that fall well short of their mortgage costs.
Sammy, I recall such conversations. Just because someone has a dissenting opinion doesn’t mean they’re not an “HBBer”. I think it’s a shame that people here (not saying you do this) attack anyone who holds a contrary opinion as a “troll”.
I don’t think it’s an unreasonable theory that rents would go up, as there’d be fewer “homeowners” due to foreclosure and the like, and thus higher demand for rentals. *However*, that ignores the increased supply of rentals due to accidental landlords and the such.
Regardless, just because someone may discount a factor compared to how much importance you may give it doesn’t make them a troll, IMO.
If rents are already starting to slip, what do you guys think will happen when all those empty houses sitting out there start to hit the rental market?
More stories of owner/flippers/investors loosing their 2nd and 3rd properties, even primary residence. Lots of people moving back home or doubling up. Supply, supply, supply…..
The reasoning made sense that rents would fall, but until recently wasn’t seeing it except for DHS, and Indio/Coachella/La Quinta etc.
Caveat: it is off season. Seeing lots of 1st mo free, or 2-3 mo free etc. But apts and some/few condos. Only 1bdrm.
Time will tell. After August, we shall see if the empty housing will open up cheaper rents. Hope so. I want a GoodNice for well under 900. And here, not down valley.
I’m here with Sammy. I recall a few of those threads. The HBB’rs were debating how much of a rent decrease. There was an emphasis on alligators and ‘doubling up’ or ‘going home to mom’ in those threads. There was discussion (hope?) of illegals going home in *far* greater number than what has been seen (besides, that was agreed to not effect rents in most HBBer target neighborhoods).
What we missed is how many renters would double up.
Most of those arguing rent was going to run away were also arguing “you might as well buy now.”
The typical HBBer comeback discussed ‘involuntary landlord’ and JT’s.
I’m all for a disagreement on where the economy is going. That promotes healthy investigation/debate.
Personally, I still predict import inflation (e.g., oil, but not in 2009) and domestic deflation (too much overbuilding and competition for jobs).
This topic, in the past, was often tied up with predictions of unemployment. Ummm… for the record, I’ll admit my unemployment predictions were way off. (We’ve blown past my worst case scenario.)
I’m noticing the nicest rentals are going empty here in the South bay LA. Being more precise: the priciest rentals are going begging for renters. I’m not talking about places that are overpriced ‘for what they are.’ We’ve definately seen a substitution of ‘inferior goods’ when it comes to housing. e.g., on the beach places go begging for someone to pay the mortgage while nice moderately prices rentals in good school districts are ’snapped up.’
But new ‘landlords’ are finding they can be underbid. I see a bunch of homes asking $4k to $5k per month for rent in this area. Most are not overpriced, by last year’s standards. But a home on a golf course, large, just entered the fray for $4k/month for 2 to 3 years. This home is nicer (view, lot size, more bedroom and living space) than the sitting competitors. But the couple who lives there wishes to travel while they still physically can. They do not care that their competition is asking $6k to $7k/month. They want to make a little profit and keep the home occupied while they travel. (Why not, as they pointed out, this is the only time they could afford to travel 1st class around the world.) Low rent=tenant selection.
So this downward spiral in rents will only continue. JTR was right, this is the “Great squish down.”
Unless the global hotel overbuilding was just a mirage. (Its what is allowing couples like this to travel for years.)
Got Popcorn?
Neil
I think that the days of premium prices for houses or apartments just because of the views or ideal locations coming to an end for J6P and the herd due to economics and practical realities. That goes for both sales or rentals.
For the average working Joe, the expense of the over-priced rental 10 blocks from the Sea or the McMansion far off on the Hill looking down on his fellow little people just isn’t going to cut it in this recession and lifestyle re-alignment.
The appeal and siren songs of these ego location digs created by the RE agents, LL and the Beach Boys are going the way of Detroits fins and chrome for a while. People want the value of little Honda or Nissan in these times.
“Charlie don’t surf” …or care for the pretty views, especially when his job is in danger or his little girl may go hungry.
Well I’m moving from Irvine CA to Beaverton OR and I manage to lower my rent by 1,000 a month and get a much nicer place so having just spent a week buried in the rental market I’d say rents are probably going to be falling fast. Even though I’m moving between two markets it goes to show for rentals you can just focus on the local market as renters are mobile.
Deflation is everywhere. Will begin to get brutal as more of the economy moves underground.
People doubling up is one effect. Another is that kids don’t move out of the house.
Further couples considering divorce often rethink it.
Most familes I know of don’t need anything more than a 3bd/2bth home and could make do for a long long time with less.
Current trends indicate the rrate of houshold formation has decreased; meaning the massive overhang in inventory will be here even longer. Also watchout as states/municipalities monkey with property tax rates. Will cause even more distresss.
Further couples considering divorce often rethink it.
And guys thinking of “popping the question” rethink it, due to economic stress.
underground is for sure where a large portion of the economy is going … i have talked to sooooooooo many opeople that will work for the state i.e. unemployment and work only for cash. this is maybe the governments goals to crash our system as we know it???
Not really seeing rents drop here in Houston.
However, another 1000 apt. units are about to come online in my area. This is in addition to the 2000 units that came online in the last 2 years. There are also aprox. 8000 existing units of varying age.
It would seem to be only a matter of time. Our local J6P can’t afford 1 bdrms at $700+ per month.
Riding my bike yesterday I traveled down a street of high end duplexes…This area is the best rental area in my fair city…Typically you rarely see a for rent sign since the units rent so fast…In the one block of these duplexes, roughly ten of them, there was three for rent signs…I don’t believe I have ever (even in other recessions) seen that many for rent signs in this particular area…
SCDave, for safety reasons I must urge you to discontinue riding down this street. The sight of all those “for rent” signs sprouting in front of “high rent duplexes” - a phrase obsolete since 2006 - could cause you to experience uncontrollable laughter, which in turn could cause you you to lose control of your bike.
There’s going to be enough bodies outlined in chalk on that street the way it is - don’t become one of them!
I dunno….Rents are skyrocketing here in the bluegrass. We’re hosting the horse olympics! Lock in prices while you can.
Whappenned to my link? kentuckydotcom Many Hope to Rent House for WEG
Bluegrass ??
exactly
This looks like short lived gold rush of sorts. What if attendance is down? What if people share hotel rooms? Or sleep in an RV?
Don’t count your chickens before they’re hatched….or something like that.
I was joshing. Believe me, we’ve got plenty of empty condos to hold the “hordes”.
In Florida, we’re hosting the horse lattitudes……….a long dull, hot, humid and deadly calm permeates the air. Nothing is moving. Nothing.
we have begun to canibalize the Realtors. We are sharpening up our cutlery for the mortgage brokers and we intend to skewer a few “house flippers”.
There is little hope that the inventory can be shoved overboard fast enough to prevent a total and final collapse of the captain and crew. We are up to our asses in inventory.
God help us all.
The fattest have the tastiest livers.
My lease is up at the end of this month, and my LL said “your rent won’t up.”
As to be expected, I am annoyed.
Speaking of rents, I move again in August. Got a 2/2 rental here in Colorado Springs for $600/mo. Includes free cable. Respectable side of town, too.
As of September 1, my monthly nut will be about $220 less than I am paying now.
It finally appears that some in the Front Range are feeling the pinch or understand the new reality.
Why does your rent not going up annoy you?
Presumably because he expects it to go down.
Not much precedent for landlords voluntarily lowering your rent. If you can stand to bluff, tell them you found a better deal and will be moving out when your lease expires. Just be prepared if they call your bluff.
You gotta do some legwork. Expecting something for free is absurd.
Find something else nice and negotiate. If you can’t negotiate (or won’t) for whatever reason, call that a tax and move on.
All moving involves transaction costs (both financial and psychological) but it’s not all bad. Every time I have moved, I have been forced to rethink what I really need and what can be dumped or donated. This is generally a good thing.
Yer gonna have to ask for that, I doubt it’ll come up otherwise.
my landlord raised our rent this year to about $3,700 … we had two lofts downtown LA . we moved to a much better neighborhood and love it!!! now also we pay $2,500 and laugh that the larger of our old places is still sitting empty for 3 months now and the other tenant is a pain in the arse. Greedy aholes our there.
sorry for the typos … i am 35000 ft flight in the air - it is a bit bumpy
In San Jose 15% - 20% decrease in rents on average. My just-renewed 1 year lease is $1900 monthly on 950 sq foot 2/2 compared with $2230 last year. I live in a newer large complex, considered one of the best rental properties in the area.
New move-ins are now getting $1800 monthly on a 2/2 1 year lease. Those already living here are charged more as property mgmt capitalizes on current resident’s cost of moving. I am a loyal 3 year renter, always paid on time, lived through noisy, dirty construction of nearby buildings for two years, and I am the one who is penalized. The g*ds will get these people.
They did say however that I “get my carpet cleaned” if I wanted, just like a new move-in does. You can imagine the comments running through my head.
Interestingly though, even during the housing mania in San Jose, rents in Silicon Valley never climed as high as just prior to dot com bust in early 2000. In 2000 in SJ, I paid $1700 monthly for a 3rd floor 1/1 walk-up, no elevator, no air conditioning, 20 year-old building. This same unit rented for only $1400 last year.
I’ve seen stuff in SJ on craigslist that used to be advertised at $1500/mo, now advertised for $1,000. That’s a big difference.
…yet the $1,000 still has to be advertised. Don’t forget that.
And - any renter who knows anything about renting knows that the best deals are not advertised.
What was:
‘It’s too much supply and too little demand; just classic economics,’ said Terry Hull, whose business manages rentals.
What should have been:
“It’s too much supply and too little demand for the current price, therefore we need to reduce the price; just classic economics,’ said Terry Hull, whose business manages rentals.
We are in a deflationary spiral. This is something I did not foresee, but it makes sense when you think about it.
Did massive government borrowing and spending break the U.S. out of the Great Depression? Did it break Japan out of its Lost Decade? The answer in both cases is no, but neither did it fuel inflation.
Inflation seems to happen when there are shortages of things, like oil in 1970’s America, or food in present-day Zimbabwe. However, both the Great Depression and the current recession were caused, in large part, by overproduction.
Maybe nobody is lending money because a loan that seems like a molehill today will look like a mountain tomorrow. Maybe nobody is spending because saving a penny today will be a whole lot easier than earning it next month.
Maybe nobody is spending because saving a penny today will be a whole lot easier than earning it next month.
This is the deflationary mentality in a nutshell.
Even better, the penny is worth more the next month.
I’m thinking we have moved a little further along and the opinion on debt is even more negative. So you live with out it for a while, get some interest on the money and things get cheaper. And the banks get nothing as far as transactions go.
On a sad note, my friends that live a block away with three kids… two months behind on mortgage… work in the Port of LA in the union. Working one day per week.
Getting ugly. Hope for the best for them but what can you do. I’m not wealthy enough to support them.
House directly behind us got forclosed on. For some reason tried to pass it off as a probate sale. Left a 15-18 bowrider type fishing boat behind in driveway. I’m thinking of towing it into my back driveway and holding on to it. Is that legal? Meh.
Asking prices are still too high. Should be drifting under 300K but bank listed it at 330K, where they failed to sell a house up the street. Person is still living in that one. Guess they are at year two of living free.
Personally worried that when Neil and I buy it, sometime in the next couple of years, that we will have the savings to handle the probability that our unemployment insurance has defaulted.
Good times.
On a sad note, my friends that live a block away with three kids
Why are you sad?
They made their bed; they can damn well lie in it.
I feel “vaguely” bad for the kids but hopefully they’ll come out of it learning a lesson through their parents. That or I’ll read a “vaguely” entertaining story about three heads and three bullets.
Don’t feel bad. Make sure you drop by in your Ferrari sometime with a few bottles of wine to congratulate them for taking on all that debt and being “homeowners”.
Sure FPSS, everybody expects to lose their job. And we all know that J6P is overpaid and should have been makin’ bank with all that mad pimp money.
Sheesh.
Renting or owning, for most people, you lose your job, you’re screwed just the same. If you have family, you’re really in deep.
Sure plenty of folks made really stupid financial decisions. I’ve seen ‘em do it personally. But many people are also just scrappin’ by no matter how hard they try or how frugal they are. How do you know which is which without meeting them?
FPSS, I’ve always appreciated your shrewd and astute observations, but have a heart! Geez.
Left a 15-18 bowrider type fishing boat behind in driveway. I’m thinking of towing it into my back driveway and holding on to it. Is that legal? Meh.
Are you thinking of holding onto it for your friends of yourself ? If for you friends until they retrieve it you sound like a nice friend. If for your friends why not phone them and let them know you’ll store their boat. If you planning on keeping sounds like stealing to me.
For the lost record I would hold on to it for them and charge an occasional “use fee”… aka borrow it for a weekend or two.
These are hard times and I’m part lucky, part blessed and part prepared.
Maybe not either. I’ve got plenty of space and mostly like sailing and not power boating.
FPSS… yes… I feel for the kids who would not understand. A long time ago as a younger guy in the 80s bust I felt banks were vicious. Now, I’m pretty understanding of not getting yourself completely into a situation that would adversely effect your family. The people I’m talking about are simple people that married their high school sweet hearts and wouldn’t know M3 from their ass. Hell dude you are getting pretty hard bitten.
Did massive government borrowing and spending break the U.S. out of the Great Depression? Did it break Japan out of its Lost Decade? The answer in both cases is no, but neither did it fuel inflation.
But in this case, we have the costs of two ongoing wars as well as sky-high pre-existing gov’t (and personal, and corporate) debt to contend with. I don’t believe either of those factors were present in your other two examples, but someone with more economic knowledge will have to fill me in and/or correct me here if I’m wrong.
Rents are driven by inventory. As buildings boomed during bubble we now have ample supply for the foreseeable future.
I would like to see McMansions turned into homeless shelters this will help F*d landlords in a mumber of ways, too many to mention on this blog.
I think mcmansions will make great rooming houses or efficiency apts. Every bedroom has its own bath because princess couldn’t share one with sis. Great room could be common room or “loft” apt. Huge foyer so everyone can get in and out easily. Granted, most are built like kr@p and will fall apart with heavy use, but there’s not much we can do about that.
I’m waiting for Depression-era rooming houses to make a comeback. What a concept. I’m thinking of the set-up that Forrest Gump’s mom had. Rooms rented by low-earning but hard-working singles (going to be more of those around, I predict). Simple but nutrious and healthy dinners and breakfasts served at the beginning and end of the day, around a communal table. Actual conversation around the dinner table between people becoming friends as they try to make their way in an inhospitable world. A return to the essentials, and helping eachother out. Inexpensive but rewarding pasttimes. Reconnecting to fellow humans instead of retreating into the “pod world” of online gaming or incessant texting to non-real friends.
I always liked Sherlock Holmes’ set-up. Your own pad, with a non-authoritative “mom” figure downstairs making you some din-din.
I hope there’s nothing Freudian about that.
Sammy, you been watchin’ “It’s a Wonderful Life” again?
HOAs will NEVER allow rooming houses.
What WILL happen is family moving back in.
Never say never.
I’ve rented apts in many a chopped-up victorian “mansion” that were once the domain of the wealthy and became the domain of college kids,crack heads, and assorted oddballs. Great apts generally- cold in the winter but cool in the summer. High ceilings made even small rooms seem large.
Why not?
HOAs just might make MORE money that way. More taxpayers to nail per domicile.
It’s called “section 8″. Visit Antioch CA sometime.
What’s the best way to shop for San Diego rental homes? We have outgrown the home we have rented (for five years as of the end of this year), but there is no sign prices have bottomed out yet in the owner-occupied market (still stuck at $200/sqft last time I checked on Radar Logic). So we may have to look for bigger rental housing to stave us over for the remainder of our kids’ school years…
Here in Pullman, WA things are getting silly. Homes that don’t sell are listed for rent… or rent-to-own, or both for rent and for sale. They bounce back and forth, asking too much for rent, getting frustrated, asking too much to sell, getting frustrated, and back again. Asking rents are ALL over the map, hard to know what the going price is any more. (Asking prices for sale are actually somewhat predictable, given the control of Realtors over pricing).
The point is that you can probably get a good rental, but it takes some very careful shopping and asking the right questions to avoid the accidental landlords. One dead giveaway: 9 month lease August to May. They are ALWAYS looking for someone to hold the fort until next spring when “the market comes back.”
“They bounce back and forth, asking too much for rent, getting frustrated, asking too much to sell, getting frustrated, and back again. Asking rents are ALL over the map, hard to know what the going price is any more.”
That’s what I see — a very unstable market with no sign of a clear equilibrium rent or sale price or a stable purchase-price-to-rental-rate for any given quality home.
Apartment rents around my area Pasadena/San Gabriel Valley California haven’t gone down in the last 15 months.
really? we have looked for the last 9 months and noticed a drop … especially in our price range of $2500 - $3500
Interesting to see a reference to Romanian rents/real estate prices. In Romania what we would call bribery was a fact of life - expensive liquor for the state paid doctor, a little cash or gift for the cop who pulled your car over to let you go, or to the functionary to have your papers processed ’sooner.’ One version of battering, I suppose. In the case of Romania, the country was bled dry financially by a dictator’s mad schemes. Not sure that’s so very different than the average taxpayer in this country being bled dry by mega business bailouts, ever increasing entitlements to various subgroups, funding wars on foreign soil, etc.. When the system becomes corrupt, then only the stupid and naive play by the rules.
To a large extent the whole fallback position of the bubble was “if these chumps default stronger hands will take over the property”.