May 09, 2008

And then, right on schedule, rents started plummeting

Forget living like Jack Tripper or George Jefferson bitter renters. Now's the time to live like Donald Trump, but for pennies on the dollar, in a nice new house or condo - not an apartment complex.

America has millions of vacant homes, millions of failed flippers and desperate accidental landlords, millions of foreclosures and bank owned properties, and millions of reasons why rents will be low and going lower for years to come. And don't be fooled by the government inflation numbers, which will be surpressed by falling rents for years to come.

Enjoy bubble sitters. Enjoy bitter renters. You're sitting pretty now.

Rental Rates Begin To Drop With Home Prices - Rent Concessions Can Include Up To Three Months Of Free Rent

If one were to describe house prices to falling rocks, then, it would be safe to say that rents in South Florida are dropping like boulders.

"We're just trying to stay competitive," said Frank Leonor of Design Place to CBS4 David Sutta.

After years of price increases, property managers like Leonor are doing the unheard of: offering not one, not two, but three months free rent to get you in the door.


Osman said...

Hi Keith. Long time no post, but I'll come out of lurk mode for this one.

Once again, I'll say what I usually say on HP. What you describe is might be happening in some markets but it's not happening everywhere. According to my landlord friends, some of whom own 12+ properties, rent in the City of Boulder has increased 5-10%.

I suppose it's not surprising. The foreclosure and high inventory problem has not been an issue, although the housing market has softened the past few months more than previous periods. Meanwhile, the credit crises and return to sanity in lending ("yeah, maybe we should do some underwriting")has taken out a swath of unqualified potential buyers. Many of those people (the non investors) are now renting.

Like Boulder, there are other cities where the fundamentals of supply and demand didn't get completely out of wack. Where housing prices didn't explode and the job market remains relatively healthy, rental prices are likely to see an increase (at least in the short term).

Let's see how bad the recession gets...

keith said...

Osman - nice to hear from you. I completely agree on Boulder rents rising. You're special:

1) college town - money in the bank, rents will be protected unless supply increases dramatically

2) growth restrictions - boulder is one of the ONLY towns in america (portland oregon as well) smart enough to put growth restrictions in place which of course will do wonders for real estate values and rents

3) Boulder is Boulder. No other town even close to it in America. Best town in America.

But for the other 99% of America? Rents are down and will be coming down even farther. Even Denver just down the road

Anonymous said...

Happening already in Washington DC, especially in the prime areas.

Looking at the Rosslyn-Clarendon corridor in neighboring Northern Virginia, just across the river from DC. Definitely a happening place, 1 bedroom condo's near the metro are around $350k, Whole Foods, Starbucks, and other signs of yuppie attraction.

One big apartment management company has been offering the second month rent free for people to move into one of their 6 properties in the Rosslyn-Clarendon corridor. On top of that they've held rent constant over the past year. Figure that with inflation that represents a 10-12% discount from just 2 years ago.

Gong! Next contestant please.... said...

Rents not plummeting in SF Bay Area or Seattle either.

Keith, you MISSED, this time.

Inflation up, credit tight, rents steady or increasing.

Maybe different in Croatia or Zimbabwe, certainly you can get a good deal now in Burma, with the right location, Free American Food dropped from helicopters like Big Ben, too.

Anonymous said...

To me your heading is typical of the "Flair for the dramatics" that seem to be common these days with so called news reporting.

South Florida is the number one fraud state in the country, top three foreclosure state in the country and top three over built condo developed area in the country. THAT is why rents are dropping THERE.

Anonymous said...

I would think it to be a supply/demand issue as far as renting. If a location has a boatload of foreclosures that send people to a landlord, then rents may actually go up. On the other hand, if there are a boatload of homes being rented out by the masses of morons who bought into this craze, then rents may go down to draw the people in.

Veronica Lodge said...

RE: America has millions of vacant homes, millions of failed flippers and desperate accidental landlords, millions of foreclosures and bank owned properties, and millions of reasons why rents will be low and going lower for years to come.

Although it's not happening everywhere, the paradox of plummeting rents in an inflationary economy, will soon be a reality in nearly all areas of the country. One of the factors behind this upcoming event is that an avalanche of empty houses will soon be headed our way.

Banks are holding back hundreds of thousands of homes for a variety of reasons, including these taken from the article by Charles Hugh Smith entitled What's Up (Down) with Rents?:

*** *** ***

Lenders are holding onto many foreclosed/distressed properties, neither selling nor renting them. Put yourself in the shoes of a lender overwhelmed with properties in the foreclosure pipeline.

▪ You simply don't have enough staff to process all these properties.

▪ If you dump all the units on the market, two bad things happen: the resulting crash in prices lowers the value of all the other properties which are in the pipeline (soon to be yours) and it exceeds the number of qualified, willing buyers.

▪ Auctions are OK but only if you get some minimum price. The pipeline of selling through auctions is a garden hose, and you've got a Hoover Dam full of properties.

▪ The legal issues of who actually owns the mortgage (what, a town in Norway?!) are hairy and take time to sort out.

▪ The last thing you want is to enter the property management business by renting out these homes.

▪ Many of the properties are trashed or in need of repair--expenses you don't want to pay.

▪ You'd rather find some private equity suckers, oops we mean buyers, who will take the properties off your hands privately, so the market won't even know what you sold them for.

▪ Those mortgages with PMI insurance are actually revenue streams, as the PMI insurers are paying you--at least until they go broke.

▪ Better to let the former owners live there for free and not foreclose, as that keeps the property off your balance sheet which is already beyond ugly.

▪ If you leave the residents as legal owners of the house, then they're on the hook for the property taxes. If you take the property, then you owe the property taxes.

▪ Maybe all the cheerleading pundits will be right and the market has bottomed; waiting it out makes sense as you can sell the properties next year for more than they'd fetch today.

▪ You're about to go under and the whole mess will be somebody else's problem.

▪ There may be many more reasons why lenders are holding onto foreclosed/distressed properties, but these are certainly enough to explain why hundreds of thousands of foreclosed/soon to be foreclosed properties are not on the rental market--yet.

Eventually, lenders will realize the bitter truth that the cheerleaders were wrong-- this wasn't the bottom, and their portfolio of properties continue to lose value. Even worse, local governments are passing regulations requiring lenders to maintain and repair the abandoned properties.

*** *** ***

The upcoming glut of homes is only one of 5 categories of reasons why rents are headed down. Please be sure to read the sited article and see how the other 4 categories apply to this situation.


Anonymous said...

We're livin' large in NoVa, outside DC.
I down-bid our flop lord last summer for his house in a fancy gated Community (300.00. from what he wanted!) & made him pay the 150.00 Monthly HOA as well!

Come August he'll be dropping the rent further or we'll be moving down the same street to a BIGGER, MORE LOADED & CHEAPER TO RENT house!

Scott said...

My rent was just raised in Marin in the Bay Area--
Of course this is the most affluent county in California.
I am seeing more property up for sale.

Mark in San Diego said...

Reply gong! "rents are not going down in Bay Area". . .well they are in the East Bay - Walnut Creek, Concord, Pittburgh, etc. and in Solano County, don't get started there. . .but agree, the inner core SF, Berkeley (special case like Boulder) rents are stay strong, but my friends in Oakland tell me rents there are starting to decline. . .so depends on where in the Bay Area you are talking about - I used to own rental property in Walnut Creek, and still have contacts there.

George L said...

well here in the san fernando valley rents are starting to go down faster than a year ago.if you wanted to rent a house last year,it was gonna cost you between $2,900-$3,200 a they are going between $1,900 to $2,300 for your average 3bd.2bth. home in a decent part of the valley.

as far as apartments go,they are still in a state of denial."for rent"signs in the valley are now an eye sore when 2 years ago they were landlord still has about 8 units vacant with nobody coming in to see them cause they wont lower their they can lower prices a little now or see them plummet by year's end...

Renter said...

Dropping rapidly in Phoenix metro.. for example, 4,000 sq ft McMmanions on acre with pool/jacuzzi/high end appliances go begging for 3 to 3,500K a month rent in Scottsdale.

Anonymous said...

My rent in midtown Manhattan is up for renewal and they sent me a new lease with......NO INCREASE.

I live in a PRIME location in NYC, in a luxury building. A few blocks from Bear and UBS so I think the recent layoff are starting to finally hurt NYC.

I was expecting a 5% increase. And they offered 1 or 2 yr at SAME price. Cost to buy a similiar apartment is about 2x what I pay in rent....

bitterLArenter said...

FWIW I see places in los angeles having to try much harder than previously to rent places, and I've seen signs with free first months rent and whatnot. I haven't seen those since....oh, 95 or 96?

Coincidence that was the peak of the housing crash last time? I think not.

Keep up the good work Keith!

veritas_faust said...

When we had moved to Miami (4 years ago) and were looking to rent, our shady real estate agent took us to DESIGN was such a FUCKING dump. That and being located in downtown, central little Haiti we passed.

The funny thing was the management company had a real attitude about it and they were saying how "great" the place was.

The other place they showed was typical to what we rented: Modern high rise with a water view and of course - Stainless and Granite BABY!!!!

But we were paying $500 less then the neighbors were trying to rent their places for. Of course their condos sat empty because they were too expensive. I would be curious to see what my place is going for now? I can't imagine the rent got raised.

LOL and living in Portland, OR now, where...yep the houses aren't selling and FBs are finally figuring out they need to get aggressive on pricing or they won't be able to sell.

venetiancafe said...

From 2004 to present, rent went from 545 to 735 in North Scottsdale. However, in the last 4-6 months, there are more empty and abandoned units I have ever seen anywhere for at least 15 years. I never saw people just leave in large numbers (with or with out their belongings) without telling the Whorelords.

Investor (before the nonsense) said...

I have to disagree with Keith on this one (at least locally). I am in Phoenix (I know ground zero) however I have been a landlord for a long time and DID NOT buy any of the overpriced junk in the "Boom", actually sold a property in Queen Creek at the peak. Here is what I see with rentals here. Anything out in Queen Creek, Maricopa, whole West Valley and anything out in the boonies that most of the "investors" bought and are now stuck with and cutting each others throats with "rent concessions" is dead from a price and rent perspective. However, I have had no problem raising rents with the same tenants in all of my homes. My homes are in the following locations - Mesa near the I-60 corridor in Golf Course Community, Chandler near 202 and Intel Plant, Phoenix 7 minutes from downtown, Gilbert (2 properties) near new San Tan freeway. Basically it is the old landlord rule - own in places where people want to live, and buy cheap. The economy here is not bad if you are not an illegal, laborer, contractor, Realtor or banker. Surprisingly though, if you are in the title business things are not doing too bad (desperate sellers and bank REO's) If you are in the semiconductor industry, government, healthcare or law field life is good. I have also noticed a lot more interest from renters that used to be "owners" in 2005. I have actually had better quality applications in the last year than all of the "boom" years due to the banks forcing people to have cash now instead of "why rent when you can buy". I think Florida will have problems with RE for the next decade due to all of those condos and the fact that ALL of Florida with few exceptions has to deal with AWFUL property taxes. The issue there is not as much pricing (although that is still ridiculus) it is the property taxes and hurricanes that is their undoing. If you buy a home at 6% interest, 20% down for $200K the payment is not bad, but add insurance of $3000.00 /yr and then add a property tax of $2000/yr, then the affordability goes away quick. Simply look at Plano Texas for the future of Florida. Nice houses, but low prices due to OUTRAGOUS property taxes. At least in Phoenix my expenses (insurance and property taxes) are going down with housing values. A plus if you are holding through this and bought in late 1990's - rents up, expenses down = better return. Just my thoughts - not everyone here is begging for a handout from Bush and co. said...

My rent in Newport Beach (most expensive city in America according to Forbes) dropped 40% based on price per square foot when I moved recently from a moderately nice house to a stunning new granite-and-stainless-steel laden McMansion that is 600 sq ft larger and has mind blowing views.

For those of you who say "it only happens in fraud markets," keep in mind that the local newspaper is always boasting about how Newport Beach is only one of two places in Orange County with almost no foreclosures, no bankruptcies, and nearly 70% of homes are owned outright with no mortgage.

Sorry to break it people, but unless you live in Boulder, it's coming to you very soon.

San Diego Native said...

Rents are plummeting in the places you don't want to live. In the best areas of San Diego, the rent prices haven't really moved much. In fact, my rent went up 2 months ago. In the worst parts of San Diego (new developments in south east and north county, run down neglected parts of east county) rent prices are still pretty much flat.

I live in a small apartment one block away from the ocean in Sunset Cliffs, surrounded by million dollar homes that were built 50-80 years ago, and are typically OWNED, yes I said OWNED, by financially secure individuals. With that said, if I moved into a new rental, I probably would want to get a month to month lease with hopes that the rent prices would go down. But I am thinking about catching a falling knife soon.

Anonymous said...

Good luck getting rent concessions in Atlanta. Hell good luck finding a decent home to rent period. What you posted may be true in some cities, definitely not here.

Mister Alpine said...

Sorry bitter renters, but rents are only going UP!!!! Suckers!

Anonymous said...

My rent just went up in Tampa but it seems it's only the one bedrooms that are going up. The two bedrooms have to compete with condos and houses so I'm pretty sure those rents are going nowhere. Housing prices here still have a long way to go yet before things get affordable. Can't believe how many people I talk to that still think their house values are going up. I'd have to say that we're still in the denial stage here but I've noticed a few of the home builders drastically cutting prices finally. It's the existing homeowners that remain clueless. I just read in the local paper that we have 1.5 million less people living in Tampa than in Pheonix (similar cost of living), but have more homes for sale. Prices are going to have to come down soon.

Anonymous said...

Well, it's a "Grapes of Wrath" analog where properties are not being rented out and foreclosures being stalled (i.e. the burning of the crops).

If those deflationary floodgates are open, then we'll see a double whammy collapse of both rental rates and then subsequently, a full blown collapse in housing prices due to the excess supply, esp of condos.

So the trick here is to keep as many properties off the market for as long as possible. And when that fails, then we'll see the rental implosion. said...

Sorry bitter renters, but rents are only going UP!!!! Suckers!

LMFAO ... what a total DOPE! First of all, that article is about Manhattan, where rents rarely fall.

Second of all, it was announced that 1 in 5 Wall Street jobs will be laid off, and a massive Manhattan real estate crash is predicted as a result (since Wall Street are the only non-ghetto people in NYC).

Third, I'm in a more expensive and higher-income place than Manhattan (look it up if you want) and rents are crashing here. said...

4,000 sq ft McMmanions on acre with pool/jacuzzi/high end appliances go begging for 3 to 3,500K a month rent in Scottsdale.

That's VERY high for Scottsdale. AZCentral and craigslist classifieds show much lower asking rents ... and the places are STILL empty!!!!

Lots of million-dollar-plus condos asking at or under $2,000......

Mister Alpine said...

"Third, I'm in a more expensive and higher-income place than Manhattan"

No your not. Manhattan has the highest income in the country. And there is no housing crash in Manhattan. You renters make me want to puke. Prices have only continued to go up and have yet to come down a single penny.

On a final note, rents in many other cities are also UP, including Seattle:

"Rent at an all-time high -- if you can find a place"

apt. # 1 said...

I just moved to an apartment -rents seem about flat. Don't want to "live large" in a house right now. Will change my song if prices indeed plummet.

JRinAZ said...

Rents in Ahwatukee (middle and upper-middle class Phoenix suburb) are fairly low, but they have remained unchanged in the past year. They range from 1200 for the lower end homes to 2000+ for the bigger homes. I periodically check the rental market and very rarely see any below 1200.

I can't complain though. I am renting a house for $1200 a month up against South Mountain preserve. The house is older, but its well worth it.

Anonymous said...

"We're livin' large in NoVa"

Where in NOVA are you - I am thinking I need to find me a new place!

Anonymous said...

Chrissy sure do gots some nice cans!

Arizona Jake said...

Here's what I don't understand. If Mr. and Mrs. homedebtor get booted out of their house cuz they can't pay the mortgage, that puts one more potential property on the rental market. BUT, if they then rent another place in the same city that takes one less rental off the market. In other words they cancel each other out. The only way this wouldn't happen is if the homedebtors moved to another city or state, then you would have one more rental available increasing supply. Otherwise its a wash. said...

I just read a new interview with Derek Jeter, and guess what, HE RENTS.

And please don't tell me it's okay because he's rich, because then you'd REALLY be contradicting yourselves.

Mister Alpine said...

um, no Frank, Derek Jeter OWNS, he does not rent. In 2001, he paid $13 million for a condo in one of Trump's NYC buildings. The interview you read is misleading because many condo owners in Manhattan consider their board (or in this case, Donal Trump) their landlord since he provides the building's services.

Taking a knife to a gunfight? said...

"Mark in San Diego said...
Reply gong! "rents are not going down in Bay Area". . .well they are in the East Bay - Walnut Creek, Concord, Pittburgh, etc. and in Solano County, don't get started there"

Thanks for the comment.

Now go get a map dipshit.

Been to the "East Bay lately? How about "Solano County" (halfway to Sacramento - where the rotten greedy hero Fireman have BKed the City). Forget about Oakland unless you are a keen pistol shot with a deathwish.


Mister Alpine said...

And rich people do not rent. They BUY. Only those who can't afford to buy choose to rent. These wealthy people are living very comfortably in their condos @ 15 Central Park West, and you are paying their mortgages for them!

Anonymous said...

Frank you have become even more obnoxious that usual.

pwnd said...

I was able to down bid my new place in Pacific Palisades by $250 a month, AND got 2 weeks for free. Probably wouldn't have happened last year.

Buddy of mine is already underwater ~300K on his place in Brooklyn Heights (On Prospect Park) and he hasn't even moved in. He'll likely walk away from his $150K deposit - OUCH!

Manhattan is not immune. M&A is done and Wall St. super bonuses are over. Manhattan real estate has peaked, and while should always remain expensive will crash just like every other overpriced area.

BTW, you make me want to puke too.

Anonymous said...

Here in San Fernando valley, I can see the trouble continuing to brew. Lots of condo and apt projects still under construction all over the neighborhood. A 5-unit luxury condo complex across the street got completed last November. Prices started at $775K. Not a single nibble. 2 months later, a huge banner draped across the front, "NOW LEASING". Good luck. Another condo conversion up the street is like a ghost town. Home prices have come down but only marginally. The bungalows around here now go for $775K to $825K, down from $950K to $1Mil. Still a loooong way down to equilibrium. I have friends down in Huntington Beach where price drops have been more severe. In the 92647 zip code, 3BR 2BA homes were fetching %680K to $700K in Jan, 2007. Now lucky to get $500K.

Anonymous said...

The Mexican...

I really like this blog but I really disagree on this issue, I don't think rents will be going lower for years to come. Logically, this statement does not make sense. Rents might of dropped a little in certain areas recently but it's only a matter of time before they increase

First of all, it does not matter that their is a lot of bank owned and foreclosed properties, because they are not being rented out so these houses do not increase rental supply.

The longer these properties are bank owned the longer it's going to take for some of these to go back to rental supply.

It is now harder to qualify to buy a property. This will make the bitter renter inventory increase (not good for rental rates). Everyone that walked away from their properties will have a tough time buying a home regardless of how low prices get (the majority of these people are now not only broke but they also have fuct credit). Some of u renters out there are renting because u are smart but many of u are renting because your broke, have a shitty job, and couldn't qualify to buy a house when they were handing out loans. So their is a pool of dumb renters that will Always stay in the bitter renter supply.

Inflation, I don't think I need to explain how this will also influence the rise of rental rates.

Interest rates, it's pretty obvious that the only way to fix this fuk up from Berny is to raise the interest rates. Making it harder for people to buy. Keeping the rental property supply down and the bitter renter inventory up.

Mister Alpine said...

Your "friend" in Brooklyn Heights is not underwater by $100k. YOU ARE LYING. It is interesting how all of the HPers constantly talk about how much their friends owe and other personal stuff about them, yet I do not know a single person who has told me what they owe on their house. I live in the NYC area, and we keep that kind of stuff private. So, my friend, I am quite certian that you are lying about your underwater "friend" in Brooklyn. If someone asked me what I own, I would tell them it is none of their freaking business.

Anonymous said...

Lower rents are only true in very small parts of America. Here in Cary NC, rents are going up like crazy, enough to consider buying a house again. Does it make sense to throw money into the wind at rent, or buy, get a fixed rate mortgage and at least get a principal and tax reduction. I hold no illusions-property at some point will lose money but even then, theres jingle mail.

Anonymous said...

Ross Perot Jr just cancelled work on luxury condo developments in downtown Dallas. They're going to turn it into commercial office space instead.