patrick.net

Seriously, guys, just when public psychology and the market is finally starting to turn to such an extent that --even the brain-dead, NAR-bought MSM has to acknowledge it-- NOW you guys have decided to puss out and capitulate??

Yes, the recent uptick in asking rents since March is significant (and as Surfer-X continues to point out, that's ASKING rents, not ACCEPTED rents, boys). Even so, didn't Mr. H himself predict this very phenomenon several threads ago, when he (accurately) applied the "escalation of commitment" theory to increasingly desperate FBs? Aren't the many testimonials by renters in the previous thread (while not statisticially significant) evidence enough that landlords have not repealed the law of Supply and Demand and can dictate rents at will? Not only that, but we've only just begun to see the barest start of apartment-to-condo conversions that are slowly reverting back to apartments. This alone will help flood the rental market with new inventory, right as Joe Homedebtor begins to give up on the concept of house = sure-fire investment.

As John Haverty FRIFY, To BA Or Not To BA and countless others have pointed out, there is just not going to be much in the way of real rent inflation UNLESS WAGES ALSO GO UP. This is for a very good reason: you cannot pay your rent with an NAAVLP. And what's more, rent-to-income ratios for most major metro areas of California are already hugely above the median/mean for practically every other state. It's already not unusual for CA working class households (or what's left of the middle class) to pay over 50% of take-home pay on rent. Exactly how much more can people possibly devote to rent --are they going to pay 90%? How about 100%? If this is true, I think I'm going to invest in the companies that make Ramen Noodles and peanut butter, becuase that's all people are going to be able to afford to eat after paying the rent. Or better yet, I'm going to heavily invest in housing OUTSIDE California --because that's where people will be headed in droves if this really comes to pass.

Peter P, tsk, tsk, tsk... Aren't you the guy who Face Reality used to call "Darth Bubblehead"? For shame.

Look, I'll be the first to admit that in my early phases of Bubble investigation, I was far from certain, and that I've experienced occasional bouts of self doubt. We all do, and it's really quite natural for sane people (only megalomaniacs, zealots and idiots lack the capacity for self doubt). Even so, I would recommend taking a moment to set aside all your complicated NPV/cash-flow discount models for a minute and reconsider the current situation in terms of old-fashioned COMMON SENSE. There is such a thing as being "too smart by half" and missing the forest for the trees, my overeducated gentlemen!

Now, suppose the perma-bulls' ultimate wet-dream "soft landing" scenario actually happens: price/rent correction ENTIRELY through wage & non-housing inflation. So what?? We all just got a 100-200% pay raise, boys --woo-hoo! And now we can all afford to buy a decent home for our families without taking out an insanely toxic loan. Is this an outcome I'm supposed to be afraid of? Hardly.

Personally, I don't care whether prices correct entirely through wage inflation (while nominal RE prices stay flat) or through big, nominal price drops --or some combination of the two. Either way, I win. I get the opportunity to purchase a depreciated asset tomorrow at a much lower real cost.

Have a little faith, gentlemen. The housing market moves excruciatingly, glacially slowly --but move it will.

#housing