Speculator Inventory Drives Rents Down: Honolulu
The Honolulu Advertiser reports there is no shortage of housing on one island. “Carmen Leal was so frustrated in her search for a home to rent last summer that she remembers the experience with horror. But as Honolulu’s rental market enters a much different summer this year, conditions are so renter friendly that Leal feels she’s the one in control as she searches for an apartment.”
“Leal posted a request on the Internet for a two-bedroom unit at around $1,600 per month and landlords are suddenly coming to her. ‘I’m just getting flooded with responses,’ said Leal, now emboldened to negotiate for a better price.”
“The Advertiser Sunday classifieds listed 1,074 units for rent on Sunday, May 14, compared with 752 on Sunday, May 15, 2005. ‘All of us are experiencing vacancies unlike a year ago, where that was very limited,’ said Cathy Matthews, property managers on O’ahu.’”
“Landlords and property managers say the increased supply is being fueled, in part, by military families moving back to the Mainland while their military members are deployed; and by real estate investors who can’t resell their properties at the prices they want and have to add them to the pool of rental properties already on the market.’”
“The addition of even more rental homes means that some landlords, already facing rising property appraisals and property taxes, have to cut rents just to keep properties occupied and cash flowing through their units.”
“‘Inventory is definitely higher than before,’ said Carl Frazier, owner and property manager. Frazier has been unable to find a tenant for a luxury two-bedroom, two-bath condominium. The condo has sat on the market for more than a month. To try to generate interest, Frazier has dropped the price $100 to $2,800 per month. ‘It would have gone very quickly one year ago. Now lots of inventory is driving prices down,’ Frazier said.”
“For investors, Frazier often has to tutor them on the change in Honolulu’s rental market. ‘I have owners that want me to raise the rent because their property taxes went up,’ Frazier said. ‘They don’t understand that I can’t arbitrarily raise rent under a lease. Their monthly bill has absolutely nothing to do with what we can get for rent. What the market will bear is what the market will bear, even if their monthly negative (cash flow) is too high.’”
Thanks to the reader who sent this in. What a classic sign of overbuilding. Imagine if you are a multifamily owner getting pulled down by this. It’s the same in AZ. Like the people in this article, if you really want to haggle the rents down, it can be done because there are so many flippers that will rent a new house, even if you have a pet.
If you are a renter: Paradise Found.
If you are a landlord/specuvestor/flopper:
Paradise LOST
Rooms and even houses for rent have BLOSSOMED here in San Diego. They are everywhere in North Park.
I have owners that want me to raise the rent because their property taxes went up,’ Frazier said. ‘They don’t understand that I can’t arbitrarily raise rent under a lease. Their monthly bill has absolutely nothing to do with what we can get for rent. What the market will bear is what the market will bear, even if their monthly negative (cash flow) is too high.’”
THis is a nice summary of supply/demand. If a FLOPPER/Owner doesn’t get this, they deserve to lose big $$$. Rent rate = demand/supply balance. Taxes = whatever the government decides they want and need. Not necessarily any relation. To the flippers - as Homer would say DDDDUUUUUHHHH!!!!!
I read this and had I not been in the office but instead in front of these property “owners”, one of my hands would be pointing at them, and the other slapping my knees as I LMAF at their stupidity.
Just shows the immaturity and ignorance of many of these recent buyers…they didn’t even know that the market, and not themselves, sets rental prices. Wow.
I know how to LMAO, but how do I LMAF?
what…I’m not allowed a typo?
Of course you are… it just struck me as funny and I’ve had a good day. Please don’t take me seriously… I certainly try not to.
No worries.. in actuality, I was rapidly trying to think of a clever acronym for LMAF. Couldn’t think of one earlier today and still can’t!
So much for the theory that rents rise while housing softens because more people are seeking rentals.
One key here is the amount of construction going on. Also, I don’t think wages in the area are close to supporting home prices. Throw in foolhardy speculation, and you end up oversupplied. I know it’s hard to see in areas where condo conversions are gobbling up apartments. But just like in Florida, eventually the flippers will cave in to try and stop the bleeding. At some point, the negative cash flow will force sales prices down.
You beat me to it Ben
Me too. Some posters extrapolate their market situation nationally….but in some places there are few rentals, which allows for different pricing behavior.
sadly… for me anyway… That’s seems to be the deal here (In LA..Beverly grove-ish area) I’d like to rent a house, but there’s not much available, and asking prices are at least 4-6k for 2/1. And Duplexes are in the 2900-3900 range. Oh well, I’ll stay in my place I guess. It’s fairly cheap, as I’ve been there for a while…but I’d like more space…
Ben
I play golf every Thursday night in the summer. I drive past two apartment complexes that I did underwriting surveys on a couple of years ago. They were new and very nice when I did the property surveys. Rents were around 1,000 to 1,200 a month. These apartments are owned by a large national apartment company. I had to laugh the first time I drove by this spring. They are now Condo Conversions. For sale signs every where. You know when a company that is in the business of building and renting apartments, starts sellling them as condo’s, something does not add up. Made for a good laugh though.
Scenario doesnt work if there are more houses than people needing them… As Ben said above it is a classic example of overbuilding, and once the spec buying ceases the true supply hits the market creating a glut of properties.
Several things are creating confusion on this issue in some markets. As Ben said, where condo conversions are happening there is a temporary shortage of apartments, but that goes away when the condos become rentals. Also, flippers are holding tremendous amounts of vacant inventory in some markets because are trying to sell. Eventually that all works its way back into the rental market. Not to mention the vacancies builders are holding, or soon will be.
I can attest to the shortage of apartments. Here in Palm Beach County they are still converting apartments to condsos and it has affected rents. Rents have gone up quite a bit due to a shortage of supply as well as hurricane damage to complexes.
Ultimately, many of these conversions will be turned back into rentals and/or speculators will be clamoring for tenents. Rents will flatline or even drift lower as more supply hits the rental market.
The problem is, some percentage of converted units will NOT be rentals. Thus, conversions lead to apartment shortages. Period.
LA, please re-enroll at your local community college. I would suggest starting with the following class this summer:
ECON 101.
I have a degree in Economics from a leading university. Perhaps you could point out a factual error in my post, as opposed to telling me to achieve a higher level of education in a subject in which I am already well-versed. Your thoughtful response is eagerly anticipated.
Missing information in your post:
1. Some percentage of converted units will be re-rented.
2. Some percentage of existing non-rentals will become rentals.
3. Some new rentals will be built.
4. Many renters that never would have not qualified or considered purchasing are now owners… renters have been “converted” as well as the rentals they occupied.
When your post has all this information for a particular area it will have something to dispute. Until then a learned individual such as yourself should understand there is no basis for any opinion whatsoever.
I’d suggest Psych 101 - much more relevant than Econ at this stage.
feepness: ceteris paribus, when an individual building is converted from rental to condo, there is almost certainly a decline in rental units as a result. None of the information you requested will change that. There is an infintesimally small chance that in a market as a whole that is undergoing condo conversions, that the number of potential renters declines by the same number of lost rental units. That is, only if all buyers of converted units that live in those units actually were formerly renters in that market would you see a net neutral from the conversion, discounting the net decline during the conversion process itself. And that is a supply/demand net neutral, not a net neutral for the number of rental units (the number of rental units still declines).
Well, I had to look that one up.
And ceteris paribus, you are right, per se.
You use a lot of words to say nothing. You really are learned.
I only used 19 words in my first post on the matter, and I said a lot. Why do you think you and other posters responded? I am sorry it took me so many words in subsequent posting to make you understand and admit that I was right. What was I right about, if I had nothing to say?
Exactly correct. You were right about nothing.
feepness pretty much nailed it.
Your original statement was very simple. Too simple. In both statements, you assume much. Namely, demand always goes up and other market forces are totally irrelevant. Which, as a Bachelor of Science in Economics you should be acutely aware play into the TOTAL housing equation. You know, those pesky Macro Economic things, like population trends (SD had a net loss of 40,000 people according to the US Census.), Employment (SD is already shedding Construction jobs, down 15,000-U/T), inventory of homes/condos at record levels, affordability (laff), over-leveraged market players, interest rates, blah blah blah. These have absolutely no relevance. Zip. Nada. Demand is untouchable. The Market always goes up! Everyone wants to live here!
Excess housing inventory is corrected in two ways. It’s either sold or rented. As inventory increases (at record levels mind you and with no end in sight), downward pressures on both prices and rents are the subsequent result. Gluts of Conversions will suffer most. Desirability being the key factor (it IS a dressed up apartment). Thus, the end result is most conversions will be re-converted back to rentals as demand is almost nil and prices come back into line with fundamentals. It’s basic economics. Thus, the reason for my statement about “Econ 101″.
I am going to assume two things about you LA. One, you are a conversion owner/speculator. Two, you were not a player in the SoCal market space from 89-96. The historical perspective on the condo implosion in that and other regional/national crashes and corrections are well known.
Perhaps your RE exuberance has clouded the analytical part of the brain that was necessary for that Econ Degree. It happened to a lot of people. You are not alone.
I predict that theory will get crushed in the next few years. Even the retarded landlords on here spouting it haven’t factored in that people can MOVE (duh!) to where there is oversupply and living is cheap. We’ve had a massive increase in supply all over the country in the past 4 years to cash in on the flippers’ and investors’ idiocy, so demand was artificial, and now that the downtrend is here, rent is going to follow - especially with the job losses that are coming. But all you genius landlords who claim rents are rising should try to raise rent and see how fast you end up going BK. You’re going to find out what you own owns you.
“You’re going to find out what you own owns you.”
That will be the harshest lesson of all.
I heard a great radio ad today while driving in to work in th Phx area. The offer was for some refi company. It went like this…
If you have not refied in the last three months, you want a low 1% interest rate, and have bad credit you are approved. Call us today…
I shit you not that is almost word for word what the advertisment said. What a joke this has become. It is only a matter of time till the sheite hits the fan. Interestingly though I know three people who either sold there home or sold a home in the last two weeks. Who are these idiots still out there buying???
The military component is huge. Let’s “do the math” like my sister and her husband:
1. Stay in the military with a 90% chance of a fun filled vacation in Iraq with the family living on military pay and Ohau prices while the house you bought craters in value.
2. Retire with some benefits, sell, put nearly a mil in the bank, move back to the mainland.
Can I hear a get big collective “Duh!” from the audience?
“…increased supply is being fueled, in part, by military families moving back to the Mainland while their military members are deployed.”
I think what they’re talking about is the wife and family of the active duty guys going back to live with Mom and Dad while hubby is in Iraq. Same thing happens in Oceanside and other military towns…when the Marines deploy for 6 mo - 1 yr or back to back the family moves back to their home town (cheaper/near family). School enrollment in the military town drops (teachers laid off) and rental rates go down.
I don’t think they’re talking about retirement eligible military. That’s probably a much smaller percentage and I don’t think would have that much affect on the local rental market.
P.S. Most active duty military can’t afford to buy at today’s prices.
(I’m a retiree myself)
Right, which is why so many of them have gone I/O…especially in the SD area. My wife is a Naval pharmacist and we know many military families that have bought into the “housing only goes up” nonsense. You’re right, they can’t afford it with 20% down and fixed 30yr monthly payments. They’re going to get hurt when their loans reset.
Hawaii’s atrocious schools and ridiculous housing prices (rental or purchase) give a huge incentive for young military wives to move to the Mainland, often closer to their families/support systems, while their husbands are on extended deployments to Iraq or Afghanistan. In addition, many military people — especially young enlisted people and their spouses — often run into finanical difficulties due to relatively low pay combined with irresponsible use of credit. The speculators who counted on the US miltary for a steady stream of renters may be in for a severe disappointment.
Military deployment may have an impact but it happens all the time in Hawaii. They have deployment last year or previous years ever since the Iraq war started. I believe, it’s just another excuse for the media not to offend their realtors that fund the monopolistic paper here.
parent renting now after selling on a golf course in FL
$1200 for 1400 + sq feet w all utilities
I’m figuring next lease will be $ 1100 as they keep building …….it’s different this time
The writing has been on the wall for a while…why are these people so surprised? “My property taxes went up…my monthly payments went up…I can’t find anyone to rent this property”. I guess when Tom Barrack announced he was getting out of real estate last October because there was far too much speculation and amateur investors these people should have listened. It will be a painful ride down for those who refuse to cut losses and keep their heads stuck in the sand. 2007 will be a comeback year in RE…yeah, right.
I understand where you’re coming from, but this whole this is deeply engrained in the psyche of long term bubble residents. You’d be surprised how many people still don’t have a clue. It’s only been in the last few weeks that the media has really begun to catch on to what’s happening.
I had almost forgotten about that comment. Now reminded I can’t think of a single person I know that I would call a professional who isn’t as out of the real estate market as much as is possible in California. Add to that I cannot think of anyone I know who I consider an amateur who isn’t eyeball deep in the stuff. A market of nothing but amateurs while all the professional buzzards circle out of harms way is a formula for real disaster not just a crash. The body is still twitching and I’m not goin’ anywhere near the corpse until it stops stinking.
That’s quite the visual Robert. Very effective.
robert,i do know two professionals still in the market,one will be entirely out when escrow closes this month on a spec home in san jose,the other is in a special position due to political connections and is using opm to a large extent…he has made so much $ over the last few years he feels invulnerable…..
How can he not smell the last blood in the water? I’ve seen the syndrome before especially with OPM as you note but the carcass is picked clean. Is he radically changing everything that’s worked the last 11 years? That’s the only way to stay busy these days, throw out everything you ever knew. Everything I see has toxic spraypainted all over the place. I don’t even want to short the HBs because it has gotten irrational, TOL up 5% at one point today on guidance lower. No professionals means I have no edge because I cannot predict the actions of a crazy person.
I happened to catch them discussing TOL on CNBC today. The talking head (don’t know their names) was mentioning how housing was “still strong”.
I reloaded my PUTs 5 minutes later when it was up 5.5%. Yeehah!
OT, but this is really incredible…
Virginia Beach inventory of s/f/h’s, up about 7%,
from 172 to 1816…
IN 4 DAYS !
(for reference, on March 17, it was 1302)
There is an interesting artifact happening here in the LA south bay due to flippers.
1. Commercial rents are going up due to apartment to condo “conversions.”
2. Rents on small homes have dropped to the point they’re the same as an apartment!
Now… what will happen when all of the new condos hit the market? I have a friend who was able to rent her circa 2003 condo out “cash flow positive.” Will that be true in a year? Two? I doubt it.
And what are owners doign tyring to change rents based on expenses? If you don’t understand market based pricing… Grrrr… But then again, when flippers are raising prices when a property doesn’t sell to cover their latest “holding costs…” It shoes what kind of mentality pervades the market.
The longer the standoff goes on… the harsher the correction.
Neil
oops, dammit! 1712 to 1816
Keep those numbers coming — I for one am paying attention! I’m following the Hampton Roads market very closely. Fiancee and I want to buy a house once it makes sense to do so again.
Thanks, if you’ve been reading, the colonial Williamsburg area is already down 10% or so. Reviewing some numbers this past weekend, I think Va. Beach is finally starting to go….
Good, because that’s where we want to be. I agree that it’s starting to go, btw. Please continue to share your input, it’s appreciated.
Baka — thanks from me, as well. I have a friend whose mother was pounding on her to buy in Virginia Beach (to be near Mom) before it’s too late. These numbers throw oil on that water.
baka, OT, but just out of curiosity, do you consider yourself a “bakabeikokujin”? or are you not and implying that in general all “beikokujin” are all “baka”? or none of the above?
Huh? I just selected letters at random…
I dunno, how much thought did you put into sfv hopeful?
Well, this blog certainly posits that many (literal) beikokujin have been baka. And time will tell whether or not I’m baka, whether literal or colloquial. I didn’t mean it colloquially, except in the self-deprecating way We Rent picked up on.
Cueing We Rent…
Hey, don’t look at me - I’m bakahaafu!
Time to move to Hawaii !!!
Been watching the market in Hawaii for about four years. Here is a link to their MLS: http://tinyurl.com/9rn8q
Amazing numbers on the Big Island. Inventory in Kona is up about 40% with only 9% of the listings under contract. East side is even worse. On June 6, 2005 there was 870 listings for lots in Puna. Today: 2,669. Currently, island wide there is one residential listing for every 65 residents. No budging on prices yet..wait until the end of summer.
Half Moon Lane in costa mesa has new addition to the sign: No Payments thru 2006!
such a deal. Costa Mesa zip nearing 400 for sale, 145 reduced price…
NO PAYMENTS THRU 2006!
Uh, you’re kidding right? Oh man, it just goes to show you how ridiculous this whole scene has become. That’s an ad we would expect from a furniture company, not a home builder! Please tell me you’re kidding.
http://www.hbg.com/shea_homes/half_moon_lane.aspx
For a flipper now finding himself in the position of being a landlord, be it HI or Hackensack to say he needs to raise the rent b/c his taxes have gone up seems to me the “perfect revenge”! Yeah pal, before you came along we were doing just fine (price AND tax wise). Now in your un-ending quest for free/easy money you’ve elevated expectations for local gov.’s and now that they are sending you the bill you want to pass on the cost (and you’re mad b/c you can’t?) Oh, this is too good! Pal, you better start looking for work!
From OrginationNews:
Subprime Seen as Commoditized
Subprime lending has become a “commoditized” business with reduced margins and companies have to reduce their cost structure to survive, according to Steven Nadon, the president of H&R Block Mortgage Co. The days of 150 basis point or 200 bp operating margins are gone forever. “Everyone is going to have to come to grips with that if they are going to have any chance of long-term survival,” he told the Mortgage Bankers Association’s conference in Washington. The Irvine, Calif.-based subprime lender is in the process of reviewing its operations to reduce costs and it is planning to outsource some origination steps, such as data input and basic underwriting, to India. Operating margins have declined from 119 basis points in 2004 to 52 bp in 2005 according to a MBA survey of 18 subprime lenders. Most of that decline is due to a sharp decline in gain on sale, which has dropped by 175 bp over the past three years, MBA director Marina Walsh told the nonprime conference.
Does this mean Indian guys will be driving MB’s and wearing Patek Phillipe watches??
i doubt it.
OT, but:
Long Island Inventory:
3/31/05: 15,524
2/19/06: 24,691
4/30/06: 29,427
5/11/06: 30,089
5/22/06: 31,092
Inventory has doubled since March 2005! Wow!
No spring bounce here!
Ring out the old ring in the new. Bring out the old, bring in the new!
A Tsunami of new listings!