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Double-digit rent hikes are on the way

By SFace following x   2011 Jan 13, 3:57am 10,212 views   54 comments   watch   nsfw   quote     share    


This was pretty evident to me for a year (following the REIT industry) now, but here's the nugget of the story and something you should be aware of:

http://www.marketwatch.com/story/double-digit-rent-hikes-are-on-the-way-2011-01-13?siteid=yhoof

"Apartment dwellers could be facing double-digit rent increases in the coming years as a shortage of new multifamily units coupled with a rise in prime renter-age households gives landlords clout they haven’t see since the mid-1990s, development experts said Thursday (today)."

It's going to be scary for the renters that will be facing multi-years of (close to double digit) rent escalation.

15   Michinaga   ignore (0)   2011 Jan 14, 6:38pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

> Inflation is the landlord’s best friend.

Until it coms time to sell one of your properties. Then you're stuck paying huge capital "gains" taxes on an bogus increase in value that's really just your property price reflecting future debased dollars.

Inflation is no one's best friend except the government's. True, it doesn't hurt landlords as much as it hurts renters, but it still hurts you.

16   toothfairy   ignore (1)   2011 Jan 15, 1:23am   ↑ like (2)   ↓ dislike (0)   quote   flag        

This is all part of the rebalancing.

Rents will go up-> more apartments built-> fewer homes built-> renters choose to become owners->home prices go up.

17   Hysteresis   ignore (2)   2011 Jan 15, 2:43am   ↑ like (1)   ↓ dislike (1)   quote   flag        

Austinhousingbubble says

If you are living in a million dollar house and don’t own a car like a Porsche something is wrong.

The only truly rich family I knew openly reviled anyone trying to look rich, including other members of their extended family. They did live in a big ass beautiful house(s), but they drove 12 year old Subarus and Volvos. It was this sense of noblesse oblige that always made them seem so classy to me.
Conversely, I see loads of high-dollar imports parked in the driveways of blue collar blockhouses these days. Whenever I see an expensive ride, I usually just see the monthly payment. Putting the cart before the horse is nothing new for America. I remember going to high school with a kid who lived in a homeless shelter with his mom; he showed up to school one day wearing brand new $100 Nikes. I assume his mom probably felt sorry for him and wanted to do something to salve the stigma of poverty. This is also not new, and it’s why I think it’s a facile conclusion that everything’s Jake because you see people buying fancy lattes with sprinkles on top or talking on brand new I-phones.

these are good points: a lot of times people spend money because of insecurity(keeping up with the jones'). also the less money people have, the more they spend on brands.

i spent the most money (percentage wise) when i was making the least which was in high school.
$8/hour job, buying $150 shoes and $450 jacket which was a lot at that time.

now that i have decent income, i don't care about buying expensive brand names.

turns out when i was poor, i wanted to show people i'm not by buying expensive clothes.
now that i have a job and investments, i don't care if people think i'm poor and i buy whatever is on sale.

18   gameisrigged   ignore (2)   2011 Jan 15, 5:38am   ↑ like (0)   ↓ dislike (0)   quote   flag        

"...David Crowe, chief economist for the National Association of Home Builders, said..."

What's wrong with this quote?

In other news, used car salesmen say you should buy a used car, and insurance salesmen say you should buy insurance.

Here's the flaw in his reasoning, if you can even call it reasoning: There is ALREADY a glut in housing. The low rates of new building can only make a slight dent in it, if anything. Rents aren't going to go up significantly until income goes up. Income is not going up.

19   Misstrial   ignore (0)   2011 Jan 15, 5:53am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Disclosure:
I visit MarketWatch (MW) several times per day and night and I am a member of the MW online community with over 30,000 positive feedbacks (different username) which places me in the top 1 percent of MW community members.

MW headlines this type of "news" whenever they want to promote a specific investment vehicle, which in this case would be the REITs (Real Estate Investment Trusts). Remember, MW is part of the Wall Street Journal/Dow/Barron's financial conglomerate so they are going to make whatever "news" they can to up-sell a particular investment direction.

To be sure, they are not going to fool those of us who are informed investors.
Just read the comments and see how investors mock this spin.

Who is going to lap-up this above-posted story?
Real estate agents, small-time landlords, builders, and REIT fund managers hoping to attract institutional funds, pension funds, and endowments along with dumb money.

REITs are *not* where the action is.

Its in commodities, precious metals, markets that do not have job-killing regulatory restrictions (NIMBYs, enviro-hoaxes such as the spotted owl, and hotel lobbyists and homeowners that don't want some offshore platform ruining their ocean view).

~Misstrial

20   Misstrial   ignore (0)   2011 Jan 15, 6:14am   ↑ like (0)   ↓ dislike (0)   quote   flag        

anon says

these are good points: a lot of times people spend money because of insecurity(keeping up with the jones’). also the less money people have, the more they spend on brands.
i spent the most money (percentage wise) when i was making the least which was in high school.

$8/hour job, buying $150 shoes and $450 jacket which was a lot at that time.
now that i have decent income, i don’t care about buying expensive brand names.
turns out when i was poor, i wanted to show people i’m not by buying expensive clothes.

now that i have a job and investments, i don’t care if people think i’m poor and i buy whatever is on sale.

Really good book:

Stop Acting Rich by Thomas J. Stanley, PhD.
http://www.amazon.com/Stop-Acting-Rich-Millionaire/dp/0470482559/ref=sr_1_1?ie=UTF8&s=books&qid=1295129600&sr=1-1

21   Hysteresis   ignore (2)   2011 Jan 15, 7:05am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Misstrial says

Really good book:
Stop Acting Rich by Thomas J. Stanley, PhD.

http://www.amazon.com/Stop-Acting-Rich-Millionaire/dp/0470482559/ref=sr_1_1?ie=UTF8&s=books&qid=1295129600&sr=1-1

thomas stanley is awesome.

if more people read Millionaire Next Door or Millionaire Mind by Stanley, understood it, and followed his advice, there would so many more millionaires.

people have this idea that it's easy to get rich - just buy a house and live in it!!! pick the right stocks or start the right business (restaurant being a favorite).
if more people understood getting rich is the slow accumulation and growth of wealth over time (einstein: "compounding is the 8th wonder of the world!") we would all be better off financially.

the principles behind becoming a millionaire are extremely simple. anyone with a high school education would understand. but living your life to become a millionaire is something only a very small percentage of people can do. sort of like losing 20 pounds; you know you need to eat less, burn more calories. easy to understand, hard to do. you really do have to think a certain way, have a millionaire mind, to achieve you financial goals.

the small number of folks i know that are wealthy (one of them is worth ~$60M) all think in fundamentally similar ways when it comes to money. which interestingly is the opposite of the way poor-people-that-want-to-get-rich think.

22   toothfairy   ignore (1)   2011 Jan 15, 2:55pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

but people dont really want to be millionaires, they want to spend money like they're millionaires.

living like your poor just to say that you have a million dollars isn't the point. it's all about the spending.

23   thomas.wong1986   ignore (3)   2011 Jan 15, 10:29pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

toothfairy says

but people dont really want to be millionaires, they want to spend money like they’re millionaires.

Yep! how so true...

24   Hysteresis   ignore (2)   2011 Jan 16, 3:42pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

if there's already a shortage, then prices should rise. in which case you should be buying houses.

yes?

are you buying houses?

25   bubblesitter   ignore (0)   2011 Jan 16, 11:12pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Housing shortage? BS! Doesn't Japanese have that shortage for 2 decades now?

26   EBGuy   ignore (0)   2011 Jan 17, 5:12am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Or, you can move in to the house for two years and pay ZERO capital gains taxes up to 500K if married when you sell, then move back home.
As I noted on The Exemption thread, YOU CAN NO LONGER DO THIS (legally, sorry to shout).
As part of the Mortgage Forgiveness Debt Relief Act of 2007, The Exemption is now prorated over the entire time of ownership for houses purchased for use as rentals and second homes. That is, ($250k)*qualified use time/(qualified use time + non-qualified use time).
Edit: This actually passed into law as part of the Housing Assistance Tax Act of 2008. See this link for an explanation. Non-qualified uses before Jan. 1, 2009 are excluded from calculations (better get moving Nomo!). IANAL (or tax attorney for that matter).

27   rdm   ignore (1)   2011 Jan 17, 5:14am   ↑ like (0)   ↓ dislike (1)   quote   flag        

I don't see rents rising in my area (southern Sonoma County), seem about flat. Rents are probably about 10% off peak. Without wage inflation I cannot see a significant increase in residential rents. I dont see wage inflation with the level of unemployment we have. Purchase price of houses in my area after being flat seems to be falling again and fairly rapidly. The cost to rent is already fairly high related to the average wage. Supply can increase without construction as people double and triple up in the current housing stock. This is definitely happening and not just with the Hispanic community and be a weight upon the rental market.

28   FNWGMOBDVZXDNW   ignore (2)   2011 Jan 17, 6:25am   ↑ like (0)   ↓ dislike (0)   quote   flag        

The bottom 90% control what they buy and where they live more than they control the value of their labor. The value of their labor is tied to the value of labor around the world, the portability of their job,and the whims of international corporations.
The one thing they do control is how they spend their money. If 90% of Americans were turned out to fend for themselves as you predict, then housing as an asset class would go to zero or whatever people could trade for it. Some 10 to 15% of housing would still have value. The top 15 cities (excluding outlying areas) have 30 million people or 10% of the population. If rents in these cities became so high that the huddled masses moved out, then these top 15 cities would hold their value. Everywhere else would go to zero. Too bad for Boston, Columbus, Charlotte, Memphis, and DC. Oh wait, this is not going to happen.
There is a possibility that the rich are forgetting what Henry Ford taught them about a livable wage. If that happens, companies continue to outsource and expand into cheaper labor markets, and the credit nipple is kept out the hands of the bottom 90, then life could get pretty crappy for the bottom 90. I would also think that housing in all but the most desirable locations would be a dog investment. Investments across the board would perform poorly. Most of the 'money' in rich peoples accounts and pension funds is either (1) a promise from joe six-pack or young person to pay or (2) based on the ability of a company to sell something to joe-sixpack in the future. So, if poverty is inflicted on the bottom 90, life will not necessarily get any better for the top 1 or 10%.

29   xenogear3   ignore (0)   2011 Jan 17, 9:44am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Forget about rent.
The house price will double in the next 5 years. And you will price out forever if you don't buy now.

"sounds familiar?"

30   Nomograph   ignore (0)   2011 Jan 17, 9:59am   ↑ like (0)   ↓ dislike (0)   quote   flag        

ChrisLosAngeles says

1) Supply and demand - there are plenty of homeowners renting out their garages or other bedrooms.

Who wants to live in a garage? The rental market isn't driven by drunken college students in most areas. Do you honestly think the rental market is going to tank because people would rather live in a garage?

ChrisLosAngeles says

2) People have no money.

Plenty of people have plenty of money. Even in the so-called "Great Recession", most folks have jobs and money.

ChrisLosAngeles says

3) Most of California is rent controlled (3% max increase).

Are you kidding me? Almost nothing in CA is rent controlled. Why don't you go out and try to find a nice, rent-controlled property outside of Berkeley or the ghetto? Let me know how that works out for you.

ChrisLosAngeles says

4) Salaries are only going to go down with more rampant outsourcing to India and China. Tech industry will crash eventually once it gets replaced with low paid Indians.

Do you *really* think the tech industry is going to crash because of competition? People have been saying the exact same thing for 25 years, and it just keeps thriving.

HINT: B and C grade keyboard jockeys have mostly been replaced. Top engineers from high ranking schools are still being recruited left and right.

31   FortWayne   ignore (4)   2011 Jan 17, 12:52pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Nomograph says

ChrisLosAngeles says

1) Supply and demand - there are plenty of homeowners renting out their garages or other bedrooms.

Who wants to live in a garage? The rental market isn’t driven by drunken college students in most areas. Do you honestly think the rental market is going to tank because people would rather live in a garage?
ChrisLosAngeles says

2) People have no money.

Plenty of people have plenty of money. Even in the so-called “Great Recession”, most folks have jobs and money.
ChrisLosAngeles says

3) Most of California is rent controlled (3% max increase).

Are you kidding me? Almost nothing in CA is rent controlled. Why don’t you go out and try to find a nice, rent-controlled property outside of Berkeley or the ghetto? Let me know how that works out for you.
ChrisLosAngeles says

4) Salaries are only going to go down with more rampant outsourcing to India and China. Tech industry will crash eventually once it gets replaced with low paid Indians.

Do you *really* think the tech industry is going to crash because of competition? People have been saying the exact same thing for 25 years, and it just keeps thriving.
HINT: B and C grade keyboard jockeys have mostly been replaced. Top engineers from high ranking schools are still being recruited left and right.

I'll just one sentence respond to these:

1) We are renting a garage to an old lady, far cry from a drunken college student.

2) 15 to 20% unemployment isn't a place where I would say money is frivolously going to be spent.

3) Maybe in your area it is not rent controlled, it is controlled out here.

4) Tech industry will still be around, but it will be ran by Indian/Chinese/Other... developers. I see quite many developers get replaced by foreigners who work overseas or are brought over with a visa to work here. Industry will be here, just it won't bring any prosperity the way Henry Ford did. Lately in this country we practice cheapest labor possible, not wages that can afford to buy it's own products. Give it 4 to 5 more years tops.

32   B.A.C.A.H.   ignore (0)   2011 Jan 17, 2:46pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Nomograph says

ChrisLosAngeles says

1) Supply and demand - there are plenty of homeowners renting out their garages or other bedrooms.

Who wants to live in a garage? The rental market isn’t driven by drunken college students in most areas. Do you honestly think the rental market is going to tank because people would rather live in a garage?
ChrisLosAngeles says

2) People have no money.

Plenty of people have plenty of money. Even in the so-called “Great Recession”, most folks have jobs and money.

Nomo, on my block in a blue collar section of San Jose, more than half of the 1200-1500 sqft sh*tboxes have people living in the garages. A few have, in addition, people living in sheds, trailers, covered patios, in one case an RV, in the backyards or alongside the house. They are mostly decent hardworking people who cannot afford to rent their own place. Makes finding a parking place on the street a challenge sometimes.

33   New Renter   ignore (11)   2013 Jan 31, 12:32pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Well looking at my own slice of SJ I'm not seeing any increases yet.

34   zzyzzx   ignore (1)   2013 Feb 1, 12:01am   ↑ like (0)   ↓ dislike (0)   quote   flag        

SFace says

"Apartment dwellers could be facing double-digit rent increases in the coming years as a shortage of new multifamily units coupled with a rise in prime renter-age households

Just because people are getting older doesn't mean that they can afford a house. The people that this article is depending on are Millennials that will probably stay in their parents house until they inherit it.

35   Facebooksux   ignore (0)   2013 Feb 1, 12:14am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I live in Avalon on El Camino. I spoke with the office managers (who are really nice people BTW and realize how exorbitant increases have been) and she echoed the 5% ish increase. However, anecdotally, there are a number of empty units which have been unoccupied for a couple of months now. More than I've noticed in the past, since I walk by them daily to get to parking. The nearly 20% increases last year drove a lot of people away. I stayed because there is a dearth of quality apts in the area. Most everything else is the apartment equivalent of a 1950s eichler shitbox.

If you look at the newer communities in Sunnyvale off 237 (built by REITs) a number are offering move-in specials.

36   anotheraccount   ignore (1)   2013 Feb 1, 12:50am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Facebooksux says

there are a number of empty units which have been unoccupied for a couple of months now

Same thing in Archstone. They are willing to let the unit sit for months before dropping prices more. A couple of years ago the units were never empty.

37   dublin hillz   ignore (0)   2013 Feb 1, 2:18am   ↑ like (0)   ↓ dislike (0)   quote   flag        

SFace says

treatmentreport says




Same thing in Archstone. They are willing to let the unit sit for months before dropping prices more. A couple of years ago the units were never empty.



Occupancy is 96%. It will benefit to read the earnings call transcripts to hear it from the horse's mouth.


* the more interesting fact is new supply will come online in 2013 (mostly San Jose), but only a few planned for 2014-2015. (in SFBA at least) It will be devastating for renters by 2015.


* Cap rate in prime location is 4%.

Exactly, if an apartment increases the rent from around $1600 to $1950 as archstone did in summer of 2011 even if it stays empty fo 2 months (which never happened in fremont) they would make a profit. 350*12 = $4200 minus 2 months vacancy at old rate equals $3200 - they still make $1,000. And at least in fremont, the apartment never stayed vacant for over 1 month.


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