Kinda sorta matters what happens to rents too, right? Perhaps all the vacancy turning into rental props will have the effect of muting rents ahead, and extending that recovery over a longer period.
Rent's in New York are still quite high, and getting higher. This i think is because potential buyers are waiting on the sidelines for a better opportunity, thus the need to rent.
When making comparisons to long-term data, it would be helpful to:
1) chart a suitable interest rate (10-yr bonds?) alongside the rental yield.
2) make note of significant tax-law changes that may have altered the equilibrium point for price versus rental yield - changes such as a generous increase in the tax-free gains on primary residences, or a large change in income tax rates.
My rent in Brooklyn increased 0% this year . . . though in fairness we are extremely fortunate to have a friendly, family-oriented landlord who is more concerned with keeping solid tenants than with squeezing out every last penny.
Banker -
I've actually heard the opposite recently from those that rent. the market is definately softening on rents as well. No doubt they're still high, but getting weaker.
Rents are lower in Miami, and if you are willing to take a chance on your landlord going into foreclosure, you can get a really nice place. Still hard for low income people to afford decent housing, though.
This means the bottom is in right and NAR can begin pumping falsified appraisals and mortgage companies can begin no docs and bank CEOs can look the other way and The Fed can bail out the rest, right?
I'm thinking that NAR could tap into this cash flow stream and use unemployed realtors as runners or brokers, but then again, "According to legend and folk songs, Malverde helped the poor by stealing from the rich", so probably not a good fit?
Rents do go down, with Recession looming I don't think rising rents are going to support home prices much.
Example: for Silicon Valley the Mercury news reported apartment rents:
2000: $1758
2001: $1743
2002: $1426
2003: $1312
2004: $1282 down 27%
2005: $1305
2006: $1425
2007: $1590
2008: $1660
So eight years later the area is still down from the Y2K peak, even though there has recently been an employment boom, just beginning to fade. This is now the most expensive rental market in the state.
The real banker is unlikely to emerge from his comfortable lifestyle in the bankerdome. Now if only we could figure out how to get a free guest pass...
If buying is more difficult and expensive, one would assume that rentals would be more in demand. And that rents have been held artificially low over the last few years since anyone with any cash flow could simply buy. So that tells me rents should rise.
Unless we seriously overbuilt in the last few years, and that excess housing capacity will be converted into rentals and the prices will drop?
My own experience is that there are very few NICE rentals (large single family homes in nice neighborhoods). I would have easily paid more for better quality.
"wow", you've had a lot of shake ups around here lately"
"I couldn't disagree with you more. The adminitration has been streamlined. And the media is so obsessed with the current election, they've forgotten we're here. It's an exciting time."
"We were looking for a character from Mexican folklore, a graphic representation of local culture," he said.
The brewery said it considered other representatives, like the professional wrestler "El Santo" and "La Llorona," a woman who, according to legend, appears at night to cry for her children."
Perhaps at least a realtor beer then instead of a shrine, like Subprime Imperial Pale Ale, or No Doc Stout...?
Bubbles Ben Bernanke dishes up another day full of high oil prices! Go Team!
Meanwhile, the pundits are making it clear that housing prices have to, you know, be based on something... like comparable rents, salaries, etc. Amazing what new things we're learning these days!
Rents will go up for a few more years in some places as a sort of "echo Bubble" of the Housing Bubble. Rents ALWAYS go up, because: "It's different here," "lots of people have lost their homes, so they need to rent," and so on.
As usual, rents, like housing prices, can't keep going up if salaries continue to stagnate or decline and the prices for everything else keep going up.
If buying is more difficult and expensive, one would assume that rentals would be more in demand. And that rents have been held artificially low over the last few years since anyone with any cash flow could simply buy. So that tells me rents should rise.
Unless we seriously overbuilt in the last few years, and that excess housing capacity will be converted into rentals and the prices will drop?
In my area that's certainly the case. The local newspaper has been lamenting how a flood of rental properties bought as investments are coming onto the market driving down rents.
Remember, vacant homes are at a record as a percentage of total housing stock today. By a wide margin.
There are simply too many places to live in the US, so for me it's hard to imagine that the cost of shelter is going to go up whether renting or buying unless we do some massive mothballing.
Of course that wouldn't necessarily apply to all markets such as those with intrinsically tight housing supplies, but recessionary conditions could be an additional force driving rents down in these areas.
Unless we seriously overbuilt in the last few years, and that excess housing capacity will be converted into rentals and the prices will drop?
The theory seems to be that when home prices fall far enough, investors will snap up the properties and (possibly via a management company) run a rental business. If the numbers work out, thats one way to make lemonade from lemons.
Nothing is "typical" in this market. And at the risk of repeating a frequent theme, we are badly overbuilt on housing in general. That will bring down rents sooner or later. Rents have gone up in the short term as housing has been removed from the market (condo conversions, speculation, foreclosures), but will come back down as it comes back on, rented out by whoever picks the housing up at the bottom of the market (I think we will see banks as landlords before too long.)
For what it's worth, "For Rent" signs are all over the place in D.C. right now. Too much supply coming on market from big new complexes that were originally designated condos but which were converted to apartments at the last minute. That story will be playing itself out in many other cities; yes, even New York.
Speaker73: "With stagnant wages, doesn't the increase in energy and food costs force the marginal renter to move to a less expensive place?"
That, or do what has been discussed here before: combine households. I'm already seeing anecdotal evidence of just that: people getting foreclosed or otherwise unable to afford their current place, packing up and moving in with the relatives. "Temporarily", of course.
But the potential for a significant, if short-term, increase in household size has been neglected in virtually all of the housing supply analysis. I believe it is already happening, however, and will mean further downward pressure on demand for both homes and rentals.
Cmon, now, you know Ben has to destroy the real economy in order to save it.
I think the fish has this one right. As those steely-eyed sharkish deep pocketed investors buy up the REOs, inevitably they will put them on the rental market.
I for one am heartened my Cartographer Ben's Map of Misery (is the misery index going up or down these days?) which shows that the only places where houses are going down are where the mass of the population lives. Must be another plan to save the poor family farmers.
I'm not seeing where the 3.5% - 5% figure is coming from in this chart. It's the relationship between house prices and rents & rent/price yield, but I'm not making the right connection. It's not saying that rent payments are 5% of yearly house payments, is it? That doesn't make sense.
The assumption is buyers turn back into renters, but what if what really happens is a collapse into families sharing housing again? It's possible rents will stay lower for longer if less people become renters and more become multi-generational homes.
RayOnTheFarm writes:
Unless we seriously overbuilt in the last few years, and that excess housing capacity will be converted into rentals and the prices will drop?
The theory seems to be that when home prices fall far enough, investors will snap up the properties and (possibly via a management company) run a rental business. If the numbers work out, thats one way to make lemonade from lemons.
RayOnTheFarm | 05.09.08 - 3:27 pm | #
Right. It's all local. That's probably the case in Boston and probably NY, where the construction overhang is fairly small. Less so in FL, CA and AZ, so anywhere else actual number of units significantly out paces total demand for units.
With stagnant wages, doesn't the increase in energy and food costs force the marginal renter to move to a less expensive place?
Unless the commodity market corrects, I would expect rents to fall, further lowering the floor for housing prices.
This is why some economists actually argue that rising oil prices are deflationary, not inflationary when they're rising faster than wages -- there's less money to spend on everything else.
On the other hand, if oil prices are rising in concert with wages my guess is that would be inflationary as an inflationary psychology develops and rising wages allow that to manifest in terms of consumers paying higher and higher prices.
I'm not seeing where the 3.5% - 5% figure is coming from in this chart.
It's just the average annual (net) rent as a percentage of the average purchase price.
They should have used ratios rather than percentages - it would have driven the point home better. Put that way, the sales prices as a multiple of annual net rents (a sort of "P/E for real estate") would have increased from ~17 to ~29 over the past 40 years, and from 21.5 to 29 over just the past 8.
With disposable income not able to keep up with existing debt, I doubt the rental market will be able to squeeze much more out of a typical middle-class renter. The debt vortex will suck everything in.
the 5% ratio makes sense to me, especially if you think the total cost of ownership of a home (debt financing, opportunity cost on equity, taxes & maintenance) are approximately 8% per year.
the difference between the rental yield and the 8% annual cost of ownership must be made up in appreciation for owning to be a better deal than renting. in a normal market, 3% annual HPA (in line with inflation) seems about right to me. you get an additional kicker from the fact that if you take out a fixed rate mortgage, your payments don't rise with inflation whereas rents do.
so all you bears on the board who want to one day buy a house, there's you're signal. when rents/prices on comparable quality properties = 5%, it's time to take a look.
i'd caution investors to hold out for better deals. investors don't get the savings that accrue from not paying rent. so the hurdle rate is much higher. you really want a 7-10% cap rate on the NOI of the property to provide a comfortable margin of safety.
so there's the question of the era: will home prices in CA merely drop to the point where it makes sense for families to buy again? or will the families be so terrified of losing money (or unable to get a loan) that prices drop to the point where investors step in.
in the former scenario, we've got another 15-25% downside, depending on the market (lower inland, higher in the nicer areas). in the latter scenario, there's probably another 30-50% downside.
donna, my thoughts exactly. My family can't be the only one where members of the family are sharing quarters more than they were a few years ago. It's not always an ideal situation, but it's such an easy way to cut costs, I suspect many others will be reaching the same conclusion.
Writing from one of the loveley red states in that map. This completely anecdotal, but I am seeing rents go down by about $200/mo asking for units in the Miami downtown/financial district. And two things regarding that forecast:
We're scheduled to get ~15,000 new condos in the next 1-2 years, what does that do to rents?
As far as owners going back in to the rental market, the flippers owned 10 units each...they're not going back into the market to rent 10 units.
I think we're picking up dialects here. My formerly mid-western, now Southern cousin is (now) from the all y'all belt. And it's a pretty complete transformation: the guy collapses at 40 degrees F.
I sure hope Case and Shiller are being paid well in this life for their contribution to massively misinforming and misleading people with their index, because they're probably going to burn in Hell in the next one.
Where I live, you can get 5%-5.5%, and there are lots of other places, too. They just aren't in California, Florida, Arizona, Nevada, etc.
All in all, I trust the OFHEO more than the Case-Shiller. Of course, using OFHEO data doesn't allow one to write as exciting a story, hence the C-S preference amongst journalists, pundits, writers, and bloggers.
Isnt the assumption that rents continue to grow a little optimistic?
In the trenches
I'm pretty sure the analysis is based on the denominator of that particular fraction, not the numerator. I.e., the price of houses will continue to go down while rents remain level or decline slightly.
Manhammer, which word in "Assuming nominal rents were to increase by 4 percent per year" don't you understand?
Carlomagno
Good point; however, that still makes no real sense. Rents aren't going up. I've yet to see any data that says they are. Even MY rent dropped this year, only ten bucks per month, but still, it's downwards.
Does anyone have any data on rent trends that shows rents rising?
"...landlord who is more concerned with keeping solid tenants than with squeezing out every last penny."
Here in my SE MI town landlords have been jacking up commercial rents so far & fast over the last 9 mos that a number of longtime downtown businesses have left, leaving vacant storefronts. I think these landlords are going to regret their timing.
Bullseye bluestatedon. I have a national chain as a tenant. They started by paying 20% less than the deadbeat I had. 15 years later I just signed them for 9 more years at a reasonable rent. Now there are probably 4-5 places nearby that would roll out the red carpet for them, but they're staying.
Manhammer wrote:
Does anyone have any data on rent trends that shows rents rising?
That's another question altogether. You could in principle get that by disaggregating the shelter components the Consumer Price Index published by BLS (one of which is "rent of primary residence"), but I don't know if they make the data available at that level of detail.
"Does anyone have any data on rent trends that shows rents rising?
R. Manhammer | 05.09.08 - 6:05 pm |"
R,
There is a lot of asking in the rents around here. Sure would be nice for the parents to get that 3-400.00 per unit cut back. At 5.5-600.00 a month they are full up. Anything more is a "wishing" price by a rental company for nice 2/1's...
BTW,I can now see rents falling to the 450-500 range. Ouch. ROI is gonna blow chunks.
Every property has an address and a property tax number. Sebastian, how about revealing the addresses and numbers of those 5-plus cap rate properties so someone can Google map 'em? No? Too Busy? But you know they're out there.
And don't let the 3.99.9 sign on the Exxon Station in the background of the "street view" on Google Maps deter you. It sure didn't deter Bush, since Iraq is producing so much more crude now.
Let's blame the gas prices where the blame is due.
Short Term....rents rise. All the houses tied up in the forclosure process, etc mean less rentals. I have talked to owners of rental homes who say there has been a huge surge in tennants who were booted out of their previous rental when their floplord (flipper turned landlord) was forclosed one. Rental supplies are getting tighter in areas with lots of forclosures.
A year or two down the line...rents will fall when the supply makes its way back to the market (replacement of wiring, fixtures notwithstanding!)
If buying is more difficult and expensive, one would assume that rentals would be more in demand.
This and other posters are engaging in a fallacy.
There are a given number of housing units and households. A given housing unit has to be either owner-occupied or rented out.
When a renter becomes an owner, there is one less renter and one less rental unit. If an owner becomes a renter, there is one more renter and one more rental unit.
If renters cannot afford to buy, the units that they can't afford to buy have to be rented out.
In other words shifts between renting and ownership do not change the rental supply/demand balance. Makes no difference to rents.
Only the relative growth of total households versus total units matters, and we all know total units are increasing faster than total households.
As demand shifts from owning to renting (or vice versa) supply is slow to respond.
Not all homes for sale are also available for rental, and not all rentals are also available for sale. Landlords are more likely to lower their rent than to give up and sell. Most sellers do not want to be landlords and are more likely to just lower their price.
Also, the the housing stock for sale is generally not a great match with what most renters are willing to pay for. So, any rental of such would not have good economics and would likely be a temporary stop gap measure.
Bottom line is that the existing supply cannot and does not shift in equal balance along with demand.
Kinda sorta matters what happens to rents too, right? Perhaps all the vacancy turning into rental props will have the effect of muting rents ahead, and extending that recovery over a longer period.
Obviously, they meant "earnings yield", not "price/earnings ratio".
Some evidence for Geoff's suggestion, at least in FL:
Rental Rates Begin To Drop With Home Prices
Isnt the assumption that rents continue to grow a little optimistic?
Rent's in New York are still quite high, and getting higher. This i think is because potential buyers are waiting on the sidelines for a better opportunity, thus the need to rent.
Banker
Were these kinda papers hard to find in 2003, 2004, and 2005?
Geebs, neighbor's landscaper knew this 3 years ago.
Seems so obvious to everyone now. Bernanke, Greespan, et al should not get a pass for ignoring the obvious.
When making comparisons to long-term data, it would be helpful to:
1) chart a suitable interest rate (10-yr bonds?) alongside the rental yield.
2) make note of significant tax-law changes that may have altered the equilibrium point for price versus rental yield - changes such as a generous increase in the tax-free gains on primary residences, or a large change in income tax rates.
ote: tax-free gains require gains.
Banker?
Is that really you?
Banker, welcome back.
My rent in Brooklyn increased 0% this year . . . though in fairness we are extremely fortunate to have a friendly, family-oriented landlord who is more concerned with keeping solid tenants than with squeezing out every last penny.
You know, what used to be called good business.
ok...so this is totally OT.
But go to NBC's web site, and watch the first bit of 30ROCK with Alec Baldwin having his first day on the job in the Bush administration.
You will all love the bits about government studies....
go. now.
Banker -
I've actually heard the opposite recently from those that rent. the market is definately softening on rents as well. No doubt they're still high, but getting weaker.
banker,
are you the original "banker" ? I thought you were in banker dome after BSC ?
if you are : welcome back.
to go from yield of 3.5% to 5% in my math the reduction in home prices is more than 15%.... more like 30% .
or are they ssaying that we are already 15% and we need 15% further to go ?
An implosion of Fannie and Freddie would get us back to historic norms quite quickly.
Rents are lower in Miami, and if you are willing to take a chance on your landlord going into foreclosure, you can get a really nice place. Still hard for low income people to afford decent housing, though.
This means the bottom is in right and NAR can begin pumping falsified appraisals and mortgage companies can begin no docs and bank CEOs can look the other way and The Fed can bail out the rest, right?
I was expecting something dramatic to happen at 2 PM like it always does. Looks like we're just going to bump along to the close today.
It's a different "Banker". The real Banker does not have a home page and would know how to spell "rents".
does this lead to higher OER/inflation?
OT (maybe), but his needs to be here, versus the REO story. But there is a potential connection to rentals... and value:
Re:
Mexican drug traffickers, others look to 'Narco Saint' for protection
Mexican drug traffickers, others look to 'Narco Saint' for protection
Mexican drug traffickers, others look to 'Narco Saint' for protection | Houston | Texas News |
Texas Cable News | TXCN.com | News for Texas
Hundreds of people are flocking to a shrine in Mexico to celebrate a controversial figure known as the Narco Saint.
Ditto what Nemo said. The "original" banker once even posted he's not this'n and has nothing to do with FX.
Rents do go down, with Recession looming I don't think rising rents are going to support home prices much.
Example: for Silicon Valley the Mercury news reported apartment rents:
2000: $1758
2001: $1743
2002: $1426
2003: $1312
2004: $1282 down 27%
2005: $1305
2006: $1425
2007: $1590
2008: $1660
So eight years later the area is still down from the Y2K peak, even though there has recently been an employment boom, just beginning to fade. This is now the most expensive rental market in the state.
The real banker is unlikely to emerge from his comfortable lifestyle in the bankerdome. Now if only we could figure out how to get a free guest pass...
Dear America,
Crude futures close at another record of $125.96/brl
Love,
Ben
If buying is more difficult and expensive, one would assume that rentals would be more in demand. And that rents have been held artificially low over the last few years since anyone with any cash flow could simply buy. So that tells me rents should rise.
Unless we seriously overbuilt in the last few years, and that excess housing capacity will be converted into rentals and the prices will drop?
My own experience is that there are very few NICE rentals (large single family homes in nice neighborhoods). I would have easily paid more for better quality.
"wow", you've had a lot of shake ups around here lately"
"I couldn't disagree with you more. The adminitration has been streamlined. And the media is so obsessed with the current election, they've forgotten we're here. It's an exciting time."
I'm thinking a shrine for unemployed and displaced realtors, but where should it be? LA?
Update on other shrine:
Mexican company launches beer in honor of unofficial drug saint
Mexican company launches beer in honor of unofficial drug saint | Welcome to StarNet - Tucson, Arizona ®
"We were looking for a character from Mexican folklore, a graphic representation of local culture," he said.
The brewery said it considered other representatives, like the professional wrestler "El Santo" and "La Llorona," a woman who, according to legend, appears at night to cry for her children."
Perhaps at least a realtor beer then instead of a shrine, like Subprime Imperial Pale Ale, or No Doc Stout...?
Bubbles Ben Bernanke dishes up another day full of high oil prices! Go Team!
Meanwhile, the pundits are making it clear that housing prices have to, you know, be based on something... like comparable rents, salaries, etc. Amazing what new things we're learning these days!
Rents will go up for a few more years in some places as a sort of "echo Bubble" of the Housing Bubble. Rents ALWAYS go up, because: "It's different here," "lots of people have lost their homes, so they need to rent," and so on.
As usual, rents, like housing prices, can't keep going up if salaries continue to stagnate or decline and the prices for everything else keep going up.
If buying is more difficult and expensive, one would assume that rentals would be more in demand. And that rents have been held artificially low over the last few years since anyone with any cash flow could simply buy. So that tells me rents should rise.
Unless we seriously overbuilt in the last few years, and that excess housing capacity will be converted into rentals and the prices will drop?
In my area that's certainly the case. The local newspaper has been lamenting how a flood of rental properties bought as investments are coming onto the market driving down rents.
Remember, vacant homes are at a record as a percentage of total housing stock today. By a wide margin.
There are simply too many places to live in the US, so for me it's hard to imagine that the cost of shelter is going to go up whether renting or buying unless we do some massive mothballing.
Of course that wouldn't necessarily apply to all markets such as those with intrinsically tight housing supplies, but recessionary conditions could be an additional force driving rents down in these areas.
With stagnant wages, doesn't the increase in energy and food costs force the marginal renter to move to a less expensive place?
Unless the commodity market corrects, I would expect rents to fall, further lowering the floor for housing prices.
Flip that rents chart upside down and it's the Case Shiller HPI.
Unless we seriously overbuilt in the last few years, and that excess housing capacity will be converted into rentals and the prices will drop?
The theory seems to be that when home prices fall far enough, investors will snap up the properties and (possibly via a management company) run a rental business. If the numbers work out, thats one way to make lemonade from lemons.
"Given the typical pace of rental growth . . . "
Nothing is "typical" in this market. And at the risk of repeating a frequent theme, we are badly overbuilt on housing in general. That will bring down rents sooner or later. Rents have gone up in the short term as housing has been removed from the market (condo conversions, speculation, foreclosures), but will come back down as it comes back on, rented out by whoever picks the housing up at the bottom of the market (I think we will see banks as landlords before too long.)
For what it's worth, "For Rent" signs are all over the place in D.C. right now. Too much supply coming on market from big new complexes that were originally designated condos but which were converted to apartments at the last minute. That story will be playing itself out in many other cities; yes, even New York.
Speaker73: "With stagnant wages, doesn't the increase in energy and food costs force the marginal renter to move to a less expensive place?"
That, or do what has been discussed here before: combine households. I'm already seeing anecdotal evidence of just that: people getting foreclosed or otherwise unable to afford their current place, packing up and moving in with the relatives. "Temporarily", of course.
But the potential for a significant, if short-term, increase in household size has been neglected in virtually all of the housing supply analysis. I believe it is already happening, however, and will mean further downward pressure on demand for both homes and rentals.
ac-
Cmon, now, you know Ben has to destroy the real economy in order to save it.
I think the fish has this one right. As those steely-eyed sharkish deep pocketed investors buy up the REOs, inevitably they will put them on the rental market.
I for one am heartened my Cartographer Ben's Map of Misery (is the misery index going up or down these days?) which shows that the only places where houses are going down are where the mass of the population lives. Must be another plan to save the poor family farmers.
I'm not seeing where the 3.5% - 5% figure is coming from in this chart. It's the relationship between house prices and rents & rent/price yield, but I'm not making the right connection. It's not saying that rent payments are 5% of yearly house payments, is it? That doesn't make sense.
The assumption is buyers turn back into renters, but what if what really happens is a collapse into families sharing housing again? It's possible rents will stay lower for longer if less people become renters and more become multi-generational homes.
RayOnTheFarm writes:
Unless we seriously overbuilt in the last few years, and that excess housing capacity will be converted into rentals and the prices will drop?
The theory seems to be that when home prices fall far enough, investors will snap up the properties and (possibly via a management company) run a rental business. If the numbers work out, thats one way to make lemonade from lemons.
RayOnTheFarm | 05.09.08 - 3:27 pm | #
Right. It's all local. That's probably the case in Boston and probably NY, where the construction overhang is fairly small. Less so in FL, CA and AZ, so anywhere else actual number of units significantly out paces total demand for units.
With stagnant wages, doesn't the increase in energy and food costs force the marginal renter to move to a less expensive place?
Unless the commodity market corrects, I would expect rents to fall, further lowering the floor for housing prices.
This is why some economists actually argue that rising oil prices are deflationary, not inflationary when they're rising faster than wages -- there's less money to spend on everything else.
On the other hand, if oil prices are rising in concert with wages my guess is that would be inflationary as an inflationary psychology develops and rising wages allow that to manifest in terms of consumers paying higher and higher prices.
I'm not seeing where the 3.5% - 5% figure is coming from in this chart.
It's just the average annual (net) rent as a percentage of the average purchase price.
They should have used ratios rather than percentages - it would have driven the point home better. Put that way, the sales prices as a multiple of annual net rents (a sort of "P/E for real estate") would have increased from ~17 to ~29 over the past 40 years, and from 21.5 to 29 over just the past 8.
With disposable income not able to keep up with existing debt, I doubt the rental market will be able to squeeze much more out of a typical middle-class renter. The debt vortex will suck everything in.
It's reassuring to see that Mr. Feroli "reckons" home prices need to fall by 10-15%. Does he also reckon that he'll have possum for dinner?
Elvis,
No that would be he is fixing to have a possum for dinner...though their table manners leave much to be desired.
Also, "y'all" is singular, and the plural is "all y'all."
the 5% ratio makes sense to me, especially if you think the total cost of ownership of a home (debt financing, opportunity cost on equity, taxes & maintenance) are approximately 8% per year.
the difference between the rental yield and the 8% annual cost of ownership must be made up in appreciation for owning to be a better deal than renting. in a normal market, 3% annual HPA (in line with inflation) seems about right to me. you get an additional kicker from the fact that if you take out a fixed rate mortgage, your payments don't rise with inflation whereas rents do.
so all you bears on the board who want to one day buy a house, there's you're signal. when rents/prices on comparable quality properties = 5%, it's time to take a look.
i'd caution investors to hold out for better deals. investors don't get the savings that accrue from not paying rent. so the hurdle rate is much higher. you really want a 7-10% cap rate on the NOI of the property to provide a comfortable margin of safety.
so there's the question of the era: will home prices in CA merely drop to the point where it makes sense for families to buy again? or will the families be so terrified of losing money (or unable to get a loan) that prices drop to the point where investors step in.
in the former scenario, we've got another 15-25% downside, depending on the market (lower inland, higher in the nicer areas). in the latter scenario, there's probably another 30-50% downside.
donna, my thoughts exactly. My family can't be the only one where members of the family are sharing quarters more than they were a few years ago. It's not always an ideal situation, but it's such an easy way to cut costs, I suspect many others will be reaching the same conclusion.
In NYC the building boom below Houston and Greenpoint/Billyburg is coming on line, cheap rents are coming down the pike.
Writing from one of the loveley red states in that map. This completely anecdotal, but I am seeing rents go down by about $200/mo asking for units in the Miami downtown/financial district. And two things regarding that forecast:
Also, "y'all" is singular, and the plural is "all y'all."
Incorrect.
y'all is always plural. It is a contraction of "you all". If it's just one person, say "you".
Speaking to one person:
Why don't you stop by for a beer.
Speaking to a couple:
Why don't y'all stop by for a beer.
Jim
I think we're picking up dialects here. My formerly mid-western, now Southern cousin is (now) from the all y'all belt. And it's a pretty complete transformation: the guy collapses at 40 degrees F.
I sure hope Case and Shiller are being paid well in this life for their contribution to massively misinforming and misleading people with their index, because they're probably going to burn in Hell in the next one.
Where I live, you can get 5%-5.5%, and there are lots of other places, too. They just aren't in California, Florida, Arizona, Nevada, etc.
Sebastia
There is more to the difference between OFHEO and Case-Shiller than mentioned in the article. This paper has a decent summary:
http://www.ofheo.gov/media/research/notediff2.pdf
All in all, I trust the OFHEO more than the Case-Shiller. Of course, using OFHEO data doesn't allow one to write as exciting a story, hence the C-S preference amongst journalists, pundits, writers, and bloggers.
blah blah blah.
Oooh! Another traditional hockey-stick chart!
When someone puts one of those up, I always know they are clueless.
Isnt the assumption that rents continue to grow a little optimistic?
In the trenches
I'm pretty sure the analysis is based on the denominator of that particular fraction, not the numerator. I.e., the price of houses will continue to go down while rents remain level or decline slightly.
Manhammer, which word in "Assuming nominal rents were to increase by 4 percent per year" don't you understand?
Assuming
"y'all is always plural. It is a contraction of "you all". If it's just one person, say "you"."
Second person plural, I thought. Replacement for "Thou" in the same way that "Youse" as in "Youse guys" is sometimes used.
Manhammer, which word in "Assuming nominal rents were to increase by 4 percent per year" don't you understand?
Carlomagno
Good point; however, that still makes no real sense. Rents aren't going up. I've yet to see any data that says they are. Even MY rent dropped this year, only ten bucks per month, but still, it's downwards.
Does anyone have any data on rent trends that shows rents rising?
"...landlord who is more concerned with keeping solid tenants than with squeezing out every last penny."
Here in my SE MI town landlords have been jacking up commercial rents so far & fast over the last 9 mos that a number of longtime downtown businesses have left, leaving vacant storefronts. I think these landlords are going to regret their timing.
Bullseye bluestatedon. I have a national chain as a tenant. They started by paying 20% less than the deadbeat I had. 15 years later I just signed them for 9 more years at a reasonable rent. Now there are probably 4-5 places nearby that would roll out the red carpet for them, but they're staying.
Manhammer wrote:
Does anyone have any data on rent trends that shows rents rising?
That's another question altogether. You could in principle get that by disaggregating the shelter components the Consumer Price Index published by BLS (one of which is "rent of primary residence"), but I don't know if they make the data available at that level of detail.
Yes, they do:
http://www.bls.gov/cpi/cpid0803.pdf
"Does anyone have any data on rent trends that shows rents rising?
R. Manhammer | 05.09.08 - 6:05 pm |"
R,
There is a lot of asking in the rents around here. Sure would be nice for the parents to get that 3-400.00 per unit cut back. At 5.5-600.00 a month they are full up. Anything more is a "wishing" price by a rental company for nice 2/1's...
BTW,I can now see rents falling to the 450-500 range. Ouch. ROI is gonna blow chunks.
Chris
Every property has an address and a property tax number. Sebastian, how about revealing the addresses and numbers of those 5-plus cap rate properties so someone can Google map 'em? No? Too Busy? But you know they're out there.
And don't let the 3.99.9 sign on the Exxon Station in the background of the "street view" on Google Maps deter you. It sure didn't deter Bush, since Iraq is producing so much more crude now.
Let's blame the gas prices where the blame is due.
It appears that CME housing index futures market is showing just that: house prices falling 10-15% over the next two years.
Short Term....rents rise. All the houses tied up in the forclosure process, etc mean less rentals. I have talked to owners of rental homes who say there has been a huge surge in tennants who were booted out of their previous rental when their floplord (flipper turned landlord) was forclosed one. Rental supplies are getting tighter in areas with lots of forclosures.
A year or two down the line...rents will fall when the supply makes its way back to the market (replacement of wiring, fixtures notwithstanding!)
Seb,
Please get real. Whatever problems you have with Case Schiller....they errors were there on the way up too. It is all relative.
As for pretending CA, FL, AZ dont matter...why dont you add them up and see what % of GDP they are.
If buying is more difficult and expensive, one would assume that rentals would be more in demand.
This and other posters are engaging in a fallacy.
There are a given number of housing units and households. A given housing unit has to be either owner-occupied or rented out.
When a renter becomes an owner, there is one less renter and one less rental unit. If an owner becomes a renter, there is one more renter and one more rental unit.
If renters cannot afford to buy, the units that they can't afford to buy have to be rented out.
In other words shifts between renting and ownership do not change the rental supply/demand balance. Makes no difference to rents.
Only the relative growth of total households versus total units matters, and we all know total units are increasing faster than total households.
As demand shifts from owning to renting (or vice versa) supply is slow to respond.
Not all homes for sale are also available for rental, and not all rentals are also available for sale. Landlords are more likely to lower their rent than to give up and sell. Most sellers do not want to be landlords and are more likely to just lower their price.
Also, the the housing stock for sale is generally not a great match with what most renters are willing to pay for. So, any rental of such would not have good economics and would likely be a temporary stop gap measure.
Bottom line is that the existing supply cannot and does not shift in equal balance along with demand.