‘Standoff’ As Buyers Want ‘Dramatically Lower Prices’
The Sacramento Bee reports on the rent ’standoff.’ “Bring on the moving vans. Renters rule the market, at least for now. By most accounts, capital-area renters are only months away from the ascending prices. ‘You haven’t had the strong rent growth yet. It is coming,’ said Greg Willett, as apartment industry consultant.”
“When, exactly, is still anyone’s guess.”
“More owners are now missing mortgage payments, a phenomenon expected to push more owners into foreclosure sales and back to renting. In recent years up to three-fourths of area buyers have used adjustable rate mortgages, and many struggle now with rising payments tied to interest rate increases. Area landlords view these as signs the rental market is shifting their way.”
“It’s a favorite new conversation of landlords and managers, said Janet Regan, president of the Sacramento chapter of the National Association of Residential Property Managers. ‘That’s one of the biggest topics every month,’ she said. ‘The market is just starting to change. We’re starting to see that we can get more for our homes as tenants move out.’”
“But it hasn’t changed so much that landlords can increase rent on existing tenants, said Regan, a broker in Citrus Heights.”
“A significant factor for demand gaining on supply: mortgage rates. They’re at four-year highs amid lofty home prices. Likewise, a mounting standoff between buyers who want dramatically lower prices and sellers not ready to offer them is bottling up even more people in rental units. Complicating that supply forecast, however, is a growing supply of homes being rented while owners try to sell them.”
“‘We’re hoping prices are going to drop in a while,’ said renter Robine Anderson of Citrus Heights. ‘It’s cheaper right now to rent than to buy so we can save more money for a down payment.’”
“Even with 11,344 homes in the four-county region for sale in April, Anderson and her husband expect to rent until sometime next year. ‘Personally, I’m just kind of waiting for things to even out a little bit and get a good deal,’ she said. ‘We’re just trying to be sensible about it.’”
Can’t believe this. Hot off the press. Still shortage of homes in Seattle area.
http://seattletimes.nwsource.com/html/businesstechnology/2003043643_webhomesales06.html
Of course, the rolling bubble is still inflating in Seattle. When it stops (as it has in other places, but not all), speculator-held inventory will be put on the market and listings will multiply like vermin. Patience.
I guess all the Seattle buyers are all moving to one neighborhood!
LOL! Or the news paper is cheerleading for a developer!
Seattle is one of the last dominos to fall and is a “destination” for CA equity locusts.
“Steady on the helm, a storm is coming”.
Was playing poker last week with a realtor friend of mine. He was telling me that a lot of the investor money from So. Cal is heading into the Seattle markets these days…
It’s interesting the press makes a rent-price story out of the situation. Remember the Denver article about all the foreclosures pushing up apartment occupancy? I guess it sounds more upbeat to focus on apartment landlord being able to cover inflation with single digit rises than to look at the broader housing market.
‘Complicating that supply forecast, however, is a growing supply of homes being rented while owners try to sell them.’
I know of a few owners that moved out of their primary house and are renting, so the home could be more easily shown.
must be afraid of having their property locked up, on foreclosure?
The rich are finally catching on. If you look at the people that they polled “The survey, conducted by asset manager U.S. Trust, polled Americans with annual adjusted gross income of more than $300,000 or net worth greater than $5.9 million, including real estate.”
You would have to assume that some of those people making over $300,000 are in the real estate industry, and that some of those people have invested heavily into the real estate market the past couple of years.
http://money.cnn.com/2006/06/05/pf/affluent_attitudes/index.htm
“More owners are now missing mortgage payments, a phenomenon expected to push more owners into foreclosure sales and back to renting.
Yes but we are talking Sac here Greg. How many of those owners are working and driving into the bay area. They ain’t gonna keep renting and driving the distance when they can rent closer in, drive less and have more family time. Other owners will play gypsy, load up and move to greener pastures while you’re salivating over the increased rent that you think you are about to capitalize on…..tee hee…..
And I can imagine landlords are just licking their chops in anticipation of renting to someone who can’t make their mortgage payments. I am sure people in default have OUTSTANDING rent payment records. NOT!
Exactly! The more discerning landlords will not be enthralled at the prospect of renting to FBs with fresh foreclosures on their credit records. In addition, there’s a huge excess capacity built into the housing market, in that a lot of FBs, especially the younger, stupider ones, i.e. condo denizens, will probably have to move back in with mom & pop or open their homes to roommates. So I really don’t see any rental squeeze that would allow most landlords to get greedy.
Sammy
I don’t know. Many of the people who purchased recently were absurdly overextended. They couldn’t possibly make those payments once the ARMs adjusted. That doesn’t mean they can’t make the rent.
Greg I hope you have a great plan for screening those sheeple you hope to shear with higher rents. What’ch gonna do when they stop payment after two months, trash the place and you have the long process of trying to evict them. Beat greed down in one area and it pops up in another, but then again, I know you are a Realtor ™ and you took and ethics course…
Rentals may also be picking up in Boise. My wife manages a complex and their occupancy rose from 70% to over 90% in just 3 months. Before that, they were getting killed with people moving in to get into housing market as the local RE agents encourged the locals to “buy now before its too late.” Now prices, especially for entry level homes” are out of reach for first time buyers. They may be renting until the bubble bursts or “cools off.”
I would contend prices have been out of reach for first time buyers for some time now. Now, they aren’t jumping in. Quite a change in perception. BTW, rents aren’t going anywhere in Arizona. There are so many stuck flippers trying to cover a little of the negative cash flow, that new houses almost dominate the for-rent ads.
Yeah, I don’t get the mentality of this. Housing stock is housing stock, and while there will be some short term flux due to a more volitile housing market (SFH & rentals) the over-built stock is still available, foreclosed on or not.
I generally agree. The wildcard though is that low interest rates have (IMHO) artificially kept rents pretty flat for the past couple of years amid rising construction costs and rising wages.
Housing stock is housing stock, but there will lots of motivated landlords to push rents, and there will be some room to do so. Will they go up 10% per year for the next 6 years to catch-up to housing prices? Not on your life. Will they outpace inflation for the majority of the next 6 years? IMHO, yes.
It depends on how fast it corrects. There could be a period (lasting years perhaps?) where a lot of homes will go into foreclosure and will sit idle. That will remove some of the inventory causing upward pressure on rents.
Of course this is offset by the inventory that is already idle and is being dumped on the market. Homes purchased by speculators and still sitting empty. I don’t think anyone really knows how big that number is. I know in San Diego I see condos that were purchased over two years ago that have never been occupied. I suspect there’s a lot of empty homes in Las Vegas & Pheniox as well. That’s going to keep rents low wherever there was a lot of speculation.
Ben- the rents at my wife’s complex have dropped slightly, so the rental market is definitely not tightening. A look on craiglist shows all of the new home you can rent for under $1000- nearly all flipper homes.
And the big question is how long will they burn cash before throwing in the towel and selling even at a loss ? We are not known for our patience here in the USA.
Yes that is the key. My greatest fear is not that the government will bail out the FBs through GSE subsidies- but that Tax cuts will go to the property owning class-allowing them to carry these bad investments long enough until inflation and necessity permanently alter the middle class home ownership at 30% of income 30 year mortagage paradigm. That would be the final blow to democracy in USA. (After of course the fraudulent elections-Statisticians of either political stripe now agree-see Rolling Stone article.) There is much more at stake here than just the bubble-we are behind payments on the whole USA, constitution and everything.
And while I’m on a roll. Let me ask: Even though we all know pro sports is more business than sport, would even a single gae begin if the y referees did not show up? What the HELL is going on when we refuse to regulate commerce? A free for- all. Which is really free for none over the long term!
When we moved into our Phoenix area rental 2 months ago our rental agent said we got in just in time since rents are moving upward quickly with the rising interest rates. We pay $990/month for a 1 year old 4 bdrm sfr valued in the $280,000 range. In our outlying NW area community the MLS listings have gone from about 1800 listings in March to currently around 2800. Rents are about the same or a little lower. Sellers are holding firm on their prices with only small reductions. However, many of the listings indicate Realtor/Owner. I am sure this is a factor in the standoff between Sellers and buyers. At this point almost nothing is selling while more houses are going on the market daily. Many of the houses are vacant so the carrying costs are adding up. Life is good as a renter.
Apartments are a “first home” for most young people.
“Even with 11,344 homes in the four-county region for sale in April”
Uh, try 15,238, not including pendings, many new homes not on the mls, or FSBO’s. The number is probably closer to 18K.
http://sacramentohousingbubble.blogspot.com
We’re up to 15,539 as on June 1. I’ll be doing an inventory update this Thursday or Friday.
http://sacrealstats.blogspot.com/
This is from a daily update I subscribe to on the economy & the markets with his feeling on housing. Thought it might be of interest.
Snip……
One area that I have been concentrating on is real estate and housing. I’ve said before that housing IS the US economy. Last year US home-owners pulled $750 billion out of their homes through refinancing. What they spend that money on I don’t know, but I suspect that one way or another it was spent, not saved.
The chart below shows the Phila. housing index in what I would have to call a free-fall or a crash. I know a lot of analysts are calling for a “soft landing” in housing. I’m not at all sure it will work out that happily. So far, the Phila. Housing Index is in the process of what I call a “hard landing,” and, of course, it’s not at all clear whether the housing index has hit bottom at all. The true or final bottom may lie many months away.
Looking ahead, if housing really starts collapsing, I would expect the Fed to reverse itself and go all out in reliquifying the economy while at the same time bringing short rates down in a hurry. Housing has been declining even while it was thought that the Fed was finished with boosting rates. Now with the chances of another rate boost this month, I expect housing could take it on the chin. Inventories are high, buyers are loaded with variable-rate mortgages, and interest rates may be heading higher. If you own a home with a big mortgage, cross your fingers. If you are planning to buy a house, my advice is — wait. Maybe I should make that suggestion a little bigger — WAIT.
Note — Both Fannie Mae and Freddie Mac gapped to new lows today, thus joining the ranks of the fading building stocks — just not a good picture.
…..end snip
“I would expect the Fed to reverse itself and go all out in reliquifying the economy while at the same time bringing short rates down in a hurry”
Won’t help. As a society we’ve borrowed and spent ourselves into a corner and the consumer is tapped out. No model exists for prolonged 20% YOY gains in housing let alone 1-2% with flat and declining wages. You can’t borrow and spend your way to prosperity, time for this ill-advised housing boom to end and investment to begin in something other than a ponzi scheme and job program for parasites.
Don’t forget, Bernanke HAS to defend the dollar unless he wants the Chinese, Japanese, etc. to dump their huge dollar holdings into Euros or gold or some sounder alternative to greenbacks. The only way he can defend the dollar (a.k.a. printing press fiat paper backed by “the good faith and credit of the United States” — try cashing THAT! — is to jack up interest rates, FBs be damned.
Bernake is really between a rock and a hard place. I have heard more than one expert say that faced with crushing the economy or abandoning the dollar to it’s fate he will abandon the dollar. Still, example Volker set may encourage him to play tough.
My guess is that he will stay in the middle and succeed in neither defending the dollar nor saving the economy from a severe decline.
…that faced with crushing the economy or abandoning the dollar to it’s fate he will abandon the dollar…
People presume this is plausible. But ultimately, I believe you would have a prisoner’s dilemma here. In the short run it might do something but it would be ultimately self defeating as it would cause the dollar to inflate horribly and all our formerly cheap imports would sky rocket and standards of living would seriously decline. Heck, just due to global pricing, even if we had all the manufacturing and production needs domestically, why would a domestic manufacturer sell to us for 5 dollars when he could now get 10 dollars international? It simply won’t work in the long run and we’d just suffer more.
About the rent situation:
It seems to me that one might expect it to ultimately be a zero sum game. When a homeowner gets pushed out of their house and becomes a renter, their former house eventually goes back into circulation too.
This guy is trying to place too much weight on the movement of owners into rental units. Yes, rents will rise when the demand for rental units rise (once ‘owners’ reach foreclosure and sell). However, the supply of rental housing has increased with new construction. And more importantly, many of these new homes were purchased as second homes. This means once they are foreclosed upon, people will NOT be looking for rental units, because they still have their primary residence. Lastly, foreclosures has not really hit a lot of people yet (give it a year or so).
So, when all these newly constructed “investment” homes are foreclosed upon, they will only increase the supply of rental units, which will keep rent prices low.
that’s my thinking. They just built too many units this time aound for rents to be pressured by demand.
I’m thinking a website that matches FBs as roomates would do good as I don’t think many will have the sec / dep by their lonesome.
Better yet, a website that matches bagholders to bag ladies, who can help them adjust to their next, more mobile phase of life living out of a cardboard box.
The great thing about dating homeless chicks is that after the date, you can drop ‘em off anywhere.
‘Blind date’ takes on a whole new meaning too.
If it becomes a bank REO, it is vacant. From the moment in enters foreclosre process until bank puts it back on market, could be 9 months to a year. I checked a Wells Fargo REO in Vegas, and they have a local agent who priced it based on current comps.
It sits vacant, and he has to send in a progress report every month. He has 6 motnhs to sell this puppy or he loses any future business with Wells. How many other REO’s will sit vacant for a year because the local agent priced comped them to high???
I’m guessing that we’ll have a period where REOs sit for a while before selling. The bank may have written off the difference between what they were owed and the net list price. If the actual market value is even less, they will have to write off even more when it actually sells. I suspect that it’s easy to put those losses off for another quarter. That is until large stocks of REOs become an issue and the bank examiners start lighting fires under the asses of banks. This could be awhile.
I don’t see rents skyrocketing in CA or other pricey areas–the money just isn’t there. Renters are renting either because they couldn’t or wouldn’t buy in the last 5 years. A decent rental apartment in urban CA starts over $1K and quickly goes to $2K per month.
I foresee mostly musical chairs, with foreclosed houses becoming rentals that are lived in by the same or other familes–but the rent payments can’t approach mortgage prices or be a whole lot higher than now.
Yes, I don’t see rents going a lot higher in CA as they are already high for the middel class. We will start to get a bigger migration out of CA by the middle class if rents go up a good amount.
You mean higher than what’s already happening right?
$1500 to 2100 for a good sized apartment in the Bay Area is plenty high. There is likely to be foreclosures in rental apartments coming soon as the rental income doesn’t cover the mortgage for recently purchased apartments. This will keep rents from rising too much as the new owner can underprice the existing ones.
I did a quick calculation. In order for the P/E ratio to get back to historic norms (year 2002) in my area of CA, rents would have to rise by about 75%. There is NO WAY that this will happen. Incomes will not rise that quick, and renters cannot get I/O, income stated rent “loans!”
But 8 years ago you probably wouldn’t have believed housing prices would go up 75%, much less 300%! (I’m not saying this will happen, I’m just pointing out the absurdity of the housing bubble)
Here in LA, rent has actually gone up a lot. You can’t find even a small shack of a house in the most ghetto parts of this city for under 1300.
I imagine that is only because everything was bought up and is now sitting empty staged with mini furniture and cookies in the oven.
There seems to be a lot, and prices are the same as when I lived there, except they all have granit counter tops now. LOL
2 bedroom penthouse apt on santa monica blvd for $1975 is cheap for the area.
http://losangeles.craigslist.org/cgi-bin/search?areaID=7&subAreaID=0&query=&catAbbreviation=apa&minAsk=min&maxAsk=max&bedrooms=1
Rents in So Cal are bifurcated.
Under $2000/mo are severely impacted and will probably rise.
CNN did a story on churn in multi-family units in Long Beach. New landlord raised rents on a single mom from $900 to $1,200. Now she is in a homeless shelter. They didn’t report on what happened to the vacancies to the new landlord.
Above $2,000/mo rents aren’t moving and are reasonably plentiful but there are still some dreamers with cost based asking rent prices, rather than market prices.
Let the vacancies sit. This is a war of attrition. Renters don’t have mortgage resets to worry about.
This is Exactly what I see in Napa CA. Luckily I can wait a spell, but I see a far more insidious trend developing. Depending on how long property owners can wait it out, we may be slipping into a new paradigm where the less well-heeled will choose between shelter with a no frills existence or no shelter and plenty of drinking money. Most of the middle class has chosen well in the past, and taken comfort in the conceit that ‘we are not so trashy as that’. I’m sure most of us are not but there is so far to fall in this country that our heads will spin- so we are all faced with choice as difficult as that before BB. Except that we do not all have the same resources at our disposal.
I have some rental homes in Ventura and only get $1800. I do not expect to see too much of an increase. Job market does not support it. I guess I could rent one house to ten people and get more, but that would make me a slum lord in a middle class neighborhood.
But it hasn’t changed so much that landlords can increase rent on existing tenants, said Regan, a broker in Citrus Heights.
For some reason I have always believe you had to be very careful about raising rent on an existing tenant. I mean if you have a good tenant, who takes care of the place, pays their rent on time…If you raise the rent they might move out, and a bad tenant can really mess the place up and cost way more than the extra $50 a month you were hoping for in rent.
My landlord tried to raise my rent from $650 to $850 last year, and I was living there for seven years with no problems (I got all my deposit back, so I obviously didn’t do any damage to the place). I said “goodbye” and left. Now I hear she is “renting” it to her kid. I doubt she’s even getting $400 a month from him!
It’s not a matter of being careful. It’s a simple matter of business.
Let’s say current rent is $1100. You want to go to $1200. If your tenant leaves because of that you have to wait a year to make it up, in addition, you must advertise and show it… better make that 18 months to recoup your costs.
And that’s not the end of the story. Think of it like investment. A solid renter is a low-risk investment. A new renter is an unknown and therefore higher risk. That alone favors the existing renter.
Rent should always be low. You want people to be raving about how low their rent is. Then when something breaks (as it will) or some other crap comes up (as it will) their mind resets every month when they write the check.
The only case for high rent / deposit is that you will get someone of means. That makes sense but then again you can just use a good credit service instead.
“By most accounts, capital-area renters are only months away from the ascending prices.” said Greg Willett, as apartment industry consultant.”
This “consultant” ought to come to my neighborhood in Sacramento and see all the houses for rent. If he did he might have to back off of that “few months” prediction.
Ooops, he did actually say “months away” not a few so I guess months away could be years away. Just like when you say a baby is 20 months old instead of a year and 8 months.
Basically, the question is how high will the “owner-occupied” vacancy rate go due the buyer-seller standoff. It could be enough to create a housing shortage for rentals in the short run.
In the long run, the bubble has cause an excess supply of housing overall, and that housing will end up occupied somehow.
Here’s a priceless ad from Craigslist–isn’t this what everyone here has been saying all along?http://phoenix.craigslist.org/apa/168540141.html
BTW, I’ve been reading this blog for about a year but this is my first time posting. I’m currently renting in the Phoenix area, waiting for the insanity to die down before buying. Economics is far from my field (I’m an IT network admin), and this blog has been a real education–thanks, Ben, and thanks to all of the very knowledgeable people who post here.
Welcome to the family, Talon!
Thanks!
Great to find like-minded folks. I have seen a lot of posts about where the major bubbles are and where prices are expected to decline. I see a lot about south Florida, but what about Central Florida, specifically Orlando and Tampa? Prices have skyrocketed in these areas over the last few years, they are amongst the biggest gainers. I’d like to see opinions about where the prices are heading. Many here feel they are immune, and that only South Florida will be affected. Anyone bearish on Orlando and Tampa markets??
Everyone everywhere thinks that IT is going to happen somewhere else, and that IT never happens here because “insert your lame reason here”. You have to take a look at the fundamentals of each area to be able to tell if your area is in for a steep decline, or a slight reduction.
There was a lot of speculation that took place in those areas you mentioned.
I live in South Florida (Jupiter to be specific). So I can’t speak from first-hand knowledge of your area. But I have been doing a TON of research on the housing market overall, both in FL and nationally. And I can tell you the bubble dynamics (huge new construction added to the pool, massive speculation, tons of conversions from apartments to condos, etc.) that are at work down here are clearly at work in Orlando, Tampa and the surrounding areas. Lots of job growth is real estate and construction related as well. IF the economy takes it in the shorts, you can bet a lot of Orlando’s tourism business is going to suffer too. I don’t have the link, but there is one person who writes a market analysis of the Orlando area every month or so and his last one had a big fat “red alert” warning stamped on it. So I think it’s just a matter of time before ALL of FL gets whacked hard. I would also point out that some of the new home builders who are publicly traded have been reporting disastrous … and I do mean disastrous … orders figures. We’re talking 29% to 41% drops YOY, and they cited FL specifically or alluded to it. These are results for April and May — the prime selling season. So I believe the nasty downturn is already underway. In fact, the FL state realtor group showed sales down YOY in EVERY MARKET BUT ONE throughout the state, with Orlando down a nasty 26% YOY and Tampa off a mind-boggling 37%. Realtors would have you believe this is a soft landing. That’s a total pile of bullshit. Link here (warning — PDF):
http://tinyurl.com/k39o6
Wow Cambells Soup is on a tear! Up 15% since March. The Soup Kitchens must be bracing for the millions with ARMs to lose their homes.
The factors that have fed this bubble (low interest rates, lax lending standards, speculation) are not local; they affect the entire country. No place will come away completly unscathed.
I still remember hearing a radio ad last summer in Minneapolis offering ‘investors’ the opportunity to ‘get in’ on all of the ‘hot’ markets like Florida & Pheonix. For heaven sakes, even people in Europe were speculating in Florida properties.
A huge correction in prices isn’t just likely, it’s inevitable .
Is the U.S. Housing Market Crumbling?
http://www.moneyweek.com/file/12849/is-the-us-housing-market-crumbling.html
‘Lombard Street Research said this week that the US economy had peaked and was tipping into an unstoppable bust. The property market is crumbling - “the real US hard landing starts now”.’
Funny, though, how the DJIA magically climbed back up above 11K right at the closing bell today. The sh!t will not really hit the fan until the headline indexes adjust to a new equilibrium level which reflects the increase in bond yields and market volatility. The volley-ball game between the builder sector and the headline indexes will get very interesting from thence forth…
I’ve never seen a bigger example of “paint the tape” in my life. That was pretty obvious. The Dow was off by 114 points with 45 minutes left and mysteriously levitated 70 points to 11,000 for no real reason whatsoever. PPT or maybe just large hedge funds or other big market players wanted to make sure than some critical support lines weren’t taken out (plus it doesn’t sound as bad on the evening news.) This game will only work for a while though, and capitulation must happen.
Speaking of “paint the tape,” I think I’m gonna find out where the open houses are this weekend, and show up a bit early to lay down some crime-scene tape and maybe outline a body or two in chalk on the sidewalk outside.
Deep down, the realtors would think it was funny, don’t you think?
LOL!!! Nice one!!!
Phx inventory is over 48k according to zip realty. We are selling just over 5k houses per month so we are at ohh roughly 9 months of inventory!!! Sweeeeeeeeet Mary mother of God.
Back to your regularly scheduled program…
Didn’t we recently hit 40,000 as a milestone??!
47,841 per http://bubbletracking.blogspot.com/2006/06/tracking-phoenixmaricopa-pinal.html
or just go to http://bubbletracking.blogspot.com/ and look for pheonix.
Traditionally, > 8.7 months of inventory is when the start of a price decline starts. The price decline continues until
Traditionally, > 8.7 months of inventory is when the start of a price decline starts. The price decline continues until
Crap man! He said too much and they had to stop him! They got to Neil!
“Bring on the moving vans. Renters rule the market, at least for now. By most accounts, capital-area renters are only months away from the ascending prices. ‘You haven’t had the strong rent growth yet. It is coming,’ said Greg Willett, as apartment industry consultant.”
He obviously has to make a statement that will serve his constituency, hopefully scaring some sheep into buying. But it is looking increasingly likely that our new Fed chairman would prefer to maintain price stability, rather adding fuel to the speculative fire. The implications for the housing market are stark:
1. Price stability translates into rent stability, meaning that Greg may need to wait forever to see his envisioned “strong rent growth.”
2. Without further spiking of the punchbowl, the speculative binge in the housing market will end, and prices will adjust downward to again reflect fundamental demand for homes as a place to live, rather than a Ponzi scheme-type speculative investment.
So why is it that Greg believes that rents are going up? I personally think he just pulled that idea out of his @ss.
Nah. I think they parroting some theories they remember from econo 101 class much like you find realtors telling you in all sincerity that real estae always goes up.
“I personally think he just pulled that idea out of his @ss.”
That about sums it up. Rents going up are a pipe dream.
Look, strong rent growth is coming people.
I’m thinking 2013 or thereabouts.
But will it be due to former Investment houses being rented at a loss being sold to actual homeowners or will it be due to restrictive lending practices that keep people renting until they can actually put 20% down again ?
I talked recently to a guy who has several rentals and has done this for quite a while..about 7 or 8 years. He raised his rents last summer…his reasoning was something like, “well, I want to get in this action!” I believe he felt “left out” of the insane real estate market and believing the hype about an endless procession of Californians with bags of money arriving every day, he thought he’d make some $$$…another theory he had was that they’d (those rich Californians) would come and rent first, while scouting out the area.
He’s now lowered the rents due to the absolutely astounding number of vacant spec homes flooding the market.
Like I posted yesterday, rents are on the rise in Sacto. 3% average so far in 2006. They were on a tear from 2000-2002. 2003 was flat then they actually went down in 2004 & 2005. Rents go in cycles like everything else and it’s usually 180 degrees different then RE market. Certain areas, mainly Natomas and Elk Grove the rise has been small..maybe .05% if any. Alot of “investor” owned houses and they are desperate to rent.
Bad news for the bitter renter crowd. I guess you can’t have your cake and eat it too.
Apartment rents are going up.
Home rents, for the first time I have ever noticed, have dropped to the point of almost being at apartment rates!!!
Normally rents are 180 degrees to buying… but there is still so much housing stock coming on the market that something will break.
Just wait for the fall…
Neil
I think apartment rents will go up steadily because people who are in transition just like to deal with the apartment landlord situiation. Smaller deposit less scrutiny. Why else would anybody rent a two bedroom apartment in Sacramento for the same price as a three bedroom house in Elk Grove. I watch these things. Rent in apartments should rise by about 10% this year. Unless condo projects revert back to apartments. Just a maybe.
Agree with your comment and like the fact you split out home and apartment rents. There is a big difference. Investors are leaving the single family home market in droves, I was one of them. No one is buying a house at these prices, the numbers no longer work except maybe in Texas. Apartment rentals are another matter, these assets are still changing hands and new owners are demanding higher rents. The San Diego Union ran numbers from the apartment association survey - rents up 10% from a year ago.
Jdog, as a former Sacramento area resident, I will say with a high degree of confidence that rents in the Sacramento area will not rise above inflation, for the very fact that job growth in Sacramento outside of anything real estate related(construction, realtors, finance) is dead, the Sacramento Housing bubble blog makes clear how much job growth is real estate related. The non real estate related jobs tend to be $10-$14hr service jobs.
Also, lest we forget in the mid 90s, when Sacramento housing was aty its lowest, rents went down as well. If landlords, appt “managment” companies try to get agressive, then people will simpily find room mates, move back with their parents, or move out of town.
This is true.
This is one case where NYC is different that the rest of the country. The rental market is tighter than a drum. You can’t find an 1 bedroom apartment in Manhattan for under $1,000. Vacancy rates are really, really low.
Apple and Butter, $1,000???
You can’t find a decent 1 bed apartment between Tribeca and 96th St for under $3,000.
And still, that is about 40-50% less than buying!
Renting isn’t cheap, but it’s cheaper than buying, that’s for sure.
‘You haven’t had the strong rent growth yet. It is coming,’ said Greg Willett, as apartment industry consultant.”
What percentage of these so-called industry experts are totally clueless — 70%? 90%? Look how many “owner/agents” are trying desperately to unload that overpriced flip-gone-awry on Craigslist. The even more astonishing thing is that despite all the evidence to the contrary, some people still take their ravings as some kind of gospel truth.
You guys will like this little story from Sacramento.
BTW, I work for a small commercial bank in LA. I do commercial financing all over the US, mostly through brokers. Most of my brokers dabble in both residential and commercial (although many are trying to do more commercial due to residential being dead).
Anyway, one of my better brokers is in Sacramento. So yesterday I asked him how the residential market is up there in Sac town (of course I knew it was a disaster but I did not know if he owned or not - did not want to offend a customer of mine). He confirms what most people on this blog already know - yes, Sac town residential mkt is in utter disarray. He said he received 3 phone calls this week from friends looking to refinance their homes. One of his buddies purchased his home from a builder (not sure which one) 12 mos ago. Of course he financed 100% of the loan but it gets better. He also financed $50k in upgrades like granite CTs, etc. Apprarenlty, he wanted to impress the chicks he brought back to his pad, so he said. Well, his loan was in the $500k range w/ payments of $2000/mo. That was fine for a while but…he only had a 1 year ARM. His payment is going up to over $4000/mo and he can’t afford it. But hold on the news gets worse for this guy. The appraised value just came in at $ 460k. Making matters worse my contact said he could maybe get $ 450k if he put the home up for sale. So what about 125% financing he asks my contact. Believe it or not it’s possible but at 13%…ouch. Not an option. So he has 2 options: sell while coming to the table w/ $50k or hand the keys back to the bank. He is cash strapped and makes $70k/yr so paying $4000 in PITI is not an option. So he is selling his collectors car, value $45k, and selling the property. I hoped he pulled a lot of chicks back to his pad during the last 12 mos…no bueno.
I think there will be alot of FB’s like him.
This is the classic scenario in my mind that will be happening all over the nation. I think it’s going to be altered, however, in that soon the credit will dry up and refi at 13% for 125% value will not be an option. Then all the people who are upside down won’t even be able to refinance. Then the BIG short sales / foreclosures happen.
I’m ashamed of myself for laughing at this story and enjoying some Schadenfreude.
The rents are calculated into CPI. So if rents go up, the inflation indicators go up, thus rates go up, so prices of houses go down.
I predict that rents will go about 10% up in next two years (in line with inflation) while prices of houses will go down about 10%.
I think you are right that increased rents will cause a rise in the official CPI, but the last time the number was reported there was a lot of discounting the rise due to the fact that rents had increased disproportionally. So I guess that “core” inflation might be measured by excluding housing as well as energy and food
But today’s news makes me think that the folks at the Fed have stopped kidding themselves about inflation and aren’t going to waste time debating the nuances of what goes into the CPI. They’re raising rates. Period.
Hope that the Sac dude who is now broke got to make good use of his granite countertops with all of the chicks he brought over. Any pictures to post on the net? LOL
here in kingman i am paying $875.00 per mo. for 3/2/2 new home 1200 sq ft. there are 100s of new homes for sale and rent. i see 1850 sq foot new never lived in trying to rent for $850.00 per month in the kingman daily minor. i dont see rents going up here any time soon, the kingmanites make 7-8 per hour. not enough to pay the rents that they (the flippers) are asking now.
What was that guy thinking would happen after a year? No one who makes $70k a year can afford payments on a $500k mortgage.
That’s a fairly standard price/income ratio in CA now. A friend bought a $450k house in the ghetto with a $50k income. Another friend bought a $700k condo on the westside with a $50k income, but she had a $200k inheritance so her loan is only $500k. A third friend bought a $350k house with a $50k income, but he later got married so now it’s only $350k with a $80k income.
All of these people bought with IO loans. Pretty much 100% of first-time buyers in LA over the last three years have used IO loans. Anecdotally, I have not talked to one person who has used fixed financing longer than 5 years, either.
Prices are just that far out of touch with incomes - LA is an expensive housing market and incomes are just a little better than average.
Sac. is probably closer to LA in demographics than the bay area or even SD, but our prices do not reflect that.