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Putting a Stake through the Heart of the "Rents are going to Shoot up" Myth


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2007 Jan 19, 5:51am   16,477 views  113 comments

by HARM   ➕follow (0)   💰tip   ignore  

Ok, it's official. We can finally put to bed one of the perma-bull/Trolls' favorite myths: rents are not about to shoot up and correct the price-to-rent imbalance all by itself. And, oh, we're not all going to work for Google and become Googleaires. Or marry supermodels... or live forever. Sorry to burst anyone's bubble. ;-)

HARM

Sacramento Bee
By Jim Wasserman - Bee Staff Writer
January 19, 2007
Story appeared in BUSINESS section, Page D3
An oversupply of units has held down prices locally.

Sacramento-area renters ruled the region's apartment complexes during 2006, seeing rents rise by only 2.3 percent compared with much larger hikes across the rest of California, a new survey shows.

Renters of 77,500 apartments in El Dorado, Placer, Sacramento and Yolo counties paid average rents ranging from $700 for a studio to $1,355 for a three-bedroom two-bath unit as the year ended, according to Novato-based RealFacts, an apartment industry tracker.

The survey showed an average rent in the four counties of $948 in larger apartment communities during the fourth quarter of 2006. That was unchanged from summer. Capital-area rents have increased just 9 percent over the past four years.

...Instead, analysts say rents have been held down by continuing oversupply of rental units after years of new apartment construction. Add to it the growing number of single-family homes now available to rent.

"A lot of people can't sell their homes, and they put them on the (rental) market," said Bruce Mills, owner of Sacramento-based M&M Properties, a rental manager

ABC7.com
LOS ANGLEES, January 18, 2007
Landlords Lowering Apartment Rates, Offering Incentives

Some Southern California landlords are lowering asking rents and offering move-in incentives, while vacancy rates are rising -- all signs the market may be softening, it was reported Thursday.

Average vacancy rates at major complexes rose in most of the Southland during the fourth quarter, while the rate of annualized rent increases slowed in many locales, the Los Angeles Times reported based on data being released Thursday by RealFacts, a Novato, Calif.-based research firm.

...But "there's a point at which you push beyond where people can afford the price and you run into resistance," John Husing of the consulting firm Economics & Politics Inc. in Riverside told The Times. "In supply and demand terms, the sign that the price has gotten too high is when you start seeing vacancies go up in the rental market, and inventories go up in the housing market."

...The trend is most apparent in the Inland Empire. After years of strong rent growth, including a 7.4 percent annual gain in the fourth quarter of 2005, the Riverside-San Bernardino County region saw rent growth climb 4.9 percent in the latest quarter to $1,141 from a year earlier, while the occupancy rate dipped 0.2 of a percentage point.

What's more, between the third and fourth quarters, the occupancy fell 3.7 percentage points. That was the biggest quarter-to-quarter drop for any of the 28 markets covered by RealFacts, which surveys landlords of buildings with 100 units or more in 15 states.

"Such widespread declines in occupancy likely herald reductions in rent growth rates," according to a RealFacts summary.

Some experts believe average rents may be lower, because RealFacts surveys landlords about their asking rents, not the final agreement they make with tenants.

New York Times
January 16, 2007
Buyers Scarce, Many Condos Are for Rent

…In some cases, developers are even turning older buildings back to rentals after a brief or aborted attempt at condo conversion. Meanwhile, another 2,500 proposed condominiums in the Washington area have been scrapped altogether, according to Delta Associates, a real estate research firm.

…Industry analysts also point out that rents may start sagging if too many condos are converted into apartments too quickly. While rents were rising at a robust 6.1 percent annual pace in the Washington area late last year, according to the Bureau of Labor Statistics, some buildings in the suburbs have recently started promoting move-in specials and other incentives to lure renters.

National Real Estate Investor
Jan 1, 2007
Mr. Fix It

“It’s so competitive out there for value-added deals right now that many investors are making aggressive assumptions about projected rent growth,” says Dr. Sam Chandan, chief economist at Reis Inc., who warns that extreme optimism may be clouding some investors’ judgment.

Chandan expects a flood of condos-for-rent to dampen rental growth in 2007. He’s also calling for a jump in new completions to slow the pace of rent growth. While he expects the final tally on 2006 asking and effective rents to show 4.1% and 4.2% growth respectively (year-end figures weren’t available in late December), he anticipates slower growth in 2007. Chandan predicts that asking and effective rents will grow by 3.4% and 3.6% respectively in 2007.

…What effect, if any, will failed condo projects have on the rental market? Some analysts call these “repartments,” or former apartments briefly converted into condos before becoming rentals again.

#housing

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93   frank649   2007 Jan 21, 10:12pm  

Spike66,

I'm sure the firm both securitizes its own and deals in other's MBS. The unloading probably applies to both and may have to do with buy-back provisions of loans themselves. Here's an interesting article...

http://tinyurl.com/28xy5x

94   Boston Transplant   2007 Jan 21, 10:47pm  

spike66 says:
"I’ve cashed out of the market, and switched mmarket funds at Vanguard just to make sure there were no MBS or agency bonds in its holdings."

spike66, did you switch bond funds at vanguard too? my bond fund there has MBS in it and I'd like to find a different fund...

95   SFWoman   2007 Jan 21, 11:04pm  

SJ,

I believe Obama attended the Punahou School in Hawaii.

96   SFWoman   2007 Jan 21, 11:11pm  

He did go to the Punahou school (Christian school). He was known as 'Barry Obama' while there.

http://www.punahou.edu/

I don't know about his politics, but spreading rumors that make him look like some sort of radical Muslim is a Rovian tactic if I've ever seen one. I'd like to see people elect someone based on their worthiness and on actual character this time around, not based on rumor and innuendo. His middle name is Hussein - big deal.

97   FormerAptBroker   2007 Jan 21, 11:39pm  

ajh Says:

> FAB, Thanks for those details about Section 8.
> I don’t think I like either of those mechanisms
> you describe, too easy for both tenants and
> landlords to game them.

A couple reasons that landlords like Section 8 are:
The rent goes up EVERY year (even if rents in the market are dropping). I have seen some rent rolls where older Section 8 tenants who have been in the building for a long time are paying 50% more than the other tenants…

Section 8 tenants don’t pay a security deposit but since the units are inspected at move in (and once a year) the landlord will get paid for damage if the tenant thrashes the place. Many landlords do the work for next to nothing then submit a bill from a company they own and make thousands extra on most Section 8 move outs…

98   SFWoman   2007 Jan 22, 12:21am  

FAB,

That explains why there are a few section 8 buildings on the outskirts of Russian Hill and Pac Heights. If you've held a building for a while and don't want to put in upgrades you are guarenteed to get your rent from the tenants. There is a section 8 building on the corner of Vallejo and Van Ness. The building looks maintained, but there is always discarded furniture from someone moving out and a couple of people in the building are always feeding pigeons. Nobody has curtains, everyone has a different blanket as window covering. As I was walking by once I actually asked someone in the building why noone had curtains. She said "We're all section 8!". I went home and looked it up, and that's how I learned about it.

99   DinOR   2007 Jan 22, 12:42am  

Nigel Swaby,

Thanks for the update! You just had to know that guy was full of it. Near as I could tell he was w/3 or 4 different mortgage firms in under 2 years? (His record was so spotty it was hard to tell). He boasted a pretty decent income for a guy w/basically NO experience, contacts or connections.

I'm not sure how or even IF RESPA regulates these issues but it sounds to me like this clown was his "own" best customer? The NASD has a formula for just how much a stockbroker can generate in comm. for his/her own account. It's been awhile since I took the "65" but it seems to me it's around 5%? Well if this guy had 15 props. in Phoenix and another 7 in NM and made them nice "thick" deals with a great payout to himself that accounts for quite a bit of his purported income.

100   StuckInBA   2007 Jan 22, 1:57am  

A question to all.

What is a good way to play oil ? I believe we are near bottom and I am curious as to how I can bet on the price increasing from this point.

I have XLE which doesn't correlate one to one with oil price. Last year I looked at DBC and USO, but wasn't clear on how well they will track the price of oil. I do not have any account where I can trade futures.

USO sounded very promising. Does anyone know more about it ? Will it track the increase/decrease in crude oil by the same % points ?

Thanks.

101   astrid   2007 Jan 22, 1:58am  

goober,

Those are some fighting words. I'm fine with "that weasel scum bastard Edwards." At least he wants to get the hell out of Iraq. I don't care what Obama's credentials are or his natural charisma, if he doesn't recognize Iraq for the hopeless and ever expanding pit of human despair that it is, Obama is dead to me.

Spike66,

True on both counts. When I'm in New York, I stay at a rather sketchy part of the Bronx. That may influence my feelings against New York. Whereas my primary exposure to SF is the very northern tip.

Urine smell actually compares favorably to the rotting watermelon smell of a Shanghai summer...but Shanghai is *home* for me.

102   HeadSet   2007 Jan 22, 2:01am  

Goober says:

"Anybody but that weasel scum bastard Edwards…….. "

I agree. We don't need anyone in office who made over $20 million suing doctors.

103   astrid   2007 Jan 22, 2:05am  

Randy,

True enough, the dual income household was not the only factor (though the extra income amongst college graduate households + smaller families probably had *something* to do with the current US consumption pattern). I acknowledged the importance of other factors in my original statement.

However, I do think that there is a natural limiting factor to the proportion of residential housing on a national economy. Once the amount goes above a certain amount, the high representation of housing in the national economy will be dangerous on the overall political economy.

104   astrid   2007 Jan 22, 2:07am  

"I agree. We don’t need anyone in office who made over $20 million suing doctors. "

Oh, even doctors and businesses that have a record of reckless negligence? Even doctors who should have had their license revoked but continue with the complicity of the current insurance scheme and AMA's silence?

(eye roll)

105   astrid   2007 Jan 22, 2:09am  

Perhaps you prefer someone who just denies patients coverage through his family HMO company and lies to get cats for his experiments.

106   astrid   2007 Jan 22, 2:13am  

(Though to clarify, I don't like multimillion dollar judgments by juries gave awards because they felt sorry for the plaintiff. However, the million dollar judgments are a symptom of a much larger and very broken overall healthcare system, not the cause.)

107   HeadSet   2007 Jan 22, 2:33am  

Astrid,

It is the legal system that is broke. Criminal doctors should be jailed, and the incompetent should have the license revoked. Taking a jackpot from the hospital enriches attorneys, but leaves that much less money for staff and equipment.

Being against millionare doctor suing lawyers does not mean one is for HMO abuse or for the dishonest. That is like saying that anyone who is for gov involvement in the economy is pro-Stalin and for gulags.

108   astrid   2007 Jan 22, 2:47am  

Headset,

I don't think much of the jury system either, but I do think the primary blame for the healthcare system lies with insurance companies/HMO/government. Trial lawyers (as opposed to insurance law lawyers) are just mosquitoes in this morass.

109   astrid   2007 Jan 22, 2:51am  

"Being against millionare doctor suing lawyers does not mean one is for HMO abuse or for the dishonest. "

Headset. When there's no better alternative to millionaire doctor suing lawyers keep the healthcare system in check, being against the said lawyer is implicitly assenting to HMO/insurance company abuse.

The cat killer statement was just gratuitous abuse on Frist.

110   Brent   2007 Jan 22, 11:05am  

FWIW, seems there is an easy cure for what ails to our legal system - mandatory awarding of attorneys fees to the winning party.

I'm also a fan of randomizing jury selection (if only for the streamlining benefits), inmates working for food and shelter, euthanasia and retroactive abortion.

But then I guess that's why engineers generally aren't elected to office.

111   Boston Transplant   2007 Jan 22, 10:34pm  

thanks spike66,

I have some of the Vanguard Total Bond Market Index Fund (VBMFX), which is 35.1% Government Mortgage-Backed. I'm gonna poke around and see if there is a good alternative...

112   astrid   2007 Jan 23, 8:58am  

Okay, so I got the governing authority wrong. But that doesn't mean my point: NOT that lawyers are blameless, merely that they don't bear the majority of the blame for US's broken healthcare system. Suggest an alternative to medical malpractice suits for kids with cerebal palsy. It's not the lawyers who award the damages, it's the juries. Demonizing lawyers (many, maybe even majority of whom are rather decent people, belief it or not) doesn't explain how the healthcare system went wrong. Demonizing a man who was skilled at winning for crippled kids and botched surgery victims (that is the other side to your wronged doctors) is not something I'm going ever agree with. There absolutely no indication that John Edwards ever behaved unethically or unprofessionally, or ever even came close.

113   astrid   2007 Jan 23, 9:17am  

spike66,

Thanks. Do the same if you ever find yourself in Shanghai (or anywhere in China) or DC.

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