patrick.net

I don't think that will happen in California. Rents are already very high, and most are rent controlled so increases can't go up more than 3% a year. I'm seeing a lot of pressure to lower rents because of removal of subsidizes coming down the pipe and increasing unemployment.

Maybe in Florida it will, but it's hard to tell from another coast. Either way, any information coming from "development experts said Thursday" is as reliable as my opinion on nuclear fusion.

A quick observation regarding the SV extended rental market. Looks like $2k gets a 4 or 5 bedroom home (2200+sq.ft.) in Tracy (some with pools). BTW, I'm including the $233 monthly ACE train pass in the $2k.

robertoaribas says

While I usually like to argue with the daffy duck, I too have had very strong rental demand on my recent close in purchases. I probably underpriced them given this demand, and if gas prices increase in the future, that will only help my rentals out.l

I would think gas prices will hurt more. Reason being is that everything becomes more expensive that must be delivered (food, clothes, consumer electronics, driving, every single item/service) except for rents. Rents would probably be pressed down due to lower amount of income average person would be left with.

This is what I think, if an average person has 200 to 300 less a month to spend there is no way they will pay more for rent. Can't squeeze any blood from a turnip.

Whatever, they can keep dreaming. Short of some sort of general inflation, I see a few things holding down rents:

1. In general, it's an aging population. Lots of old people will want to rent out their houses (or sell them), depressing prices in general. Older people also mean less population growth (less people of baby making age).

2. Labor market sucks. Gas prices going higher. Where's the money gonna come from?

3. Anecodatally, I live in Houston, one of the few cities that's sort of growing. Texas had a huge increase in population relative to the rest of the country. Our jobless rate isn't as bad as the rest of the country, especially compared to California.

What's happened to rents this past year? From what I can tell, flat to slightly lower.

Oh, and the way capitalism works, if there's a lack of supply, people will do things like build more apartment buildings.

robertoaribas says

My purchases are all close in, near public transit, and close to where people work. While I understand why it might seem that rising gas prices would lower rents, as people have less monty to spend on rent, and in general it might be true:
facing higher gas prices, more people decide to live closer to work. Perhaps, some day, the proximity to light rail also makes a difference. Thus, I believe rising gas prices would change the demand side of my rental market. I am in Tempe, it is landlocked and built out. My properties are walking distance to light rail, and 2.5 miles from the ASU.

This is the part that really upsets me, gas prices increase prices for every single thing out there. It's not just commute. Groceries, shampoo, toothpaste, every little thing become more expensive, because someone has to drive them over to the store. And our government keeps on bickering and fighting over alternative energy.

These are the same "development experts" who have called the bottom over and over, denied the bubble existed, etc., and this is pure wishing talk, hoping to change reality by changing expectations.

In this economy, with wages stagnant or falling for the lucky who are still employed, there is simply no market support for rent to be soaring anytime soon. (Yes, yes, I know, SV is immune, unemployment is actually 4% and everyone makes $300,000 a year here, blah blah blah...)

Isn't rising rents good for home prices since everyone is is always talking about rent vs. buying? The higher the rent, the more attractive buying is.

Hell, I know a few people who spend $200 per month ordering coffee from Starbucks every day.

Are you sure you're not self-referencing here? Your posts seem rather well-caffeinated to me.

I also know a few people who spring for one or two creature comforts as a sort of palliative to offset their otherwise thrifty or newly-skint lifestyles. For some people it's a big coffee with fancy foam and for others its the monthly payment on a shiny imported thing on wheels. I suspect this is the case more often than not when it comes to lavish discretionary spending.

"She's Bought a Hat Like Princess Marina..."

Unless there is some serious wage inflation I don't see this happening.

http://www.calculatedriskblog.com/2011/01/core-measures-of-inflation-increase-in.html

By these measures rents have bottomed and are starting to increase again (this fits with earlier reports of falling vacancy rates and rising rents). I don't expect rents to push up inflation very much (I think core inflation will stay low for some time with all the slack in the system), but rising rents suggests that the excess rental housing units are being absorbed - a necessary step for an eventual recovery in residential investment.

Nowadays I don't believe in any reports. I just go with actual rent data or prices of home sold recently to gauge home prices. My rent has not increased from last year after my lease expired....and asking prices of homes to be sold? I see asking prices on short sales being dropped like a rock recently. On course on busting the 2009 bottom theory :)

ducky, I must say that the RealtyTrac map still looks like a disaster zone in your part of Concord. Will you be going to auctions any time soon? Clearly the low end is supported by investors; it's the rest that could make life interesting. Still waiting on that other shoe...

I'd rather be a LL in an inflationary environment than a renter.

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.

I’d rather be a LL in an inflationary environment than a renter.

I'd rather cut my legs off and burn myself alive than be a landlord in any environment. What kind of shitty perverted kid dreams of growing up to be a landlord? Seriously, all the money-addled types make abject poverty start to look pretty good.

> 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.

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.

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.

"...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.

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

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

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.

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.

toothfairy says

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

Yep! how so true...

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

yes?

are you buying houses?

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

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).

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.

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%.

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?"

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.

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.

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

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.

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.

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.

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.