You could make a case on both sides of the rental market.
On one hand: you could say that buying a home is still an expensive proposition, and the uncertainty ahead would keep the tenant pool brimming.
On the other hand: current tenants may be buying homes to live in, plus the return of investors buying homes to rent have increased the supply of available rentals.
The U-T’s article today says that vacancy is up, and the average rents were slightly lower Y-O-Y:
An excerpt:
The ongoing recession is placing a strain on the region’s landlords, as tenants double up to save money or abandon the rental market to take advantage of bargains on foreclosed homes.
The latest half-yearly survey from the San Diego County Apartment Association shows a 5.4 percent vacancy rate for the region, a rise of 1.8 percentage points from its fall 2008 survey and 0.6 points from a year earlier.
As tenants seek out rentals with lower rates, properties less than six years old reported the highest number of vacancies in the recent survey. Complexes more than 25 years old had the highest occupancies.
The average rental rate countywide was up slightly to $1,192 from $1,188 in the fall 2008 survey, but down 0.7 percent from a year ago, when the average was $1,201. The average was mathematically weighted to take into account the dominance of one-and two-bedroom units in the marketplace.
The survey, which was mailed to nearly 6,000 rental property owners and managers throughout the county, received responses representing more than 33,000 units. Michelle Slingerland, spokeswoman for the association, blamed higher vacancies on high unemployment.
“Historically, the job market affects vacancy rates,” Slingerland said. “People are having to take on roommates or they are moving in with family. If supply increases, rental rates will go down accordingly.”
Yes, renting still looks like a better proposition to me.
OTOH, SD Reader had a cover story this week about people taking in roommates/boarders to make ends meet. That’s household destruction. Then you’ve got people leaving California because of taxes/schools/jobs etc.
I wouldn’t count on rents going up any time soon.
Wow. I’m no technician, but the trendline on that chart doesn’t look too promising for landlords either (higher highs and higher lows in the range). Makes you wonder how bad the vacancies are elsewhere if SD and Washington have the lowest vacancy rates in the country (per previous post from USC Marshall School presentation).
And what a difference in studios vs. 2+ beds–tells you where the demand is, doesn’t it? Families or sharing to cut expenses.
Thank goodness we have that fine SD weather to keep drawing people (what does Washington have?).
Love the facts! Thanks.
Wonder if there has been a big increase in the number of apartments during the boom? The vacancy rate really jumped in Spring of 2003….
Also it appears to be a market quite tied to to the school year, as it looks as if there are big swings up in the Fall and down in the Spring. Much more volatile than I would have thought.
shoppingaround wrote, “Wonder if there has been a big increase in the number of apartments during the boom?”
A very interesting question. From what I saw (very anecdotally) it seemed that during the boom every crappy thirty year old apartment building still standing was being converted to condos. Add some travertine and a steel fridge and voila! Deluxe single family home.
That said, some real numbers would be interesting to see.
I suspect that those numbers would vary a great deal from area to area within the County as well.
I don’t think the sky is quite falling on the rental market. Looks like it is getting a little soft with the economy. 5.4% vacency is not the end of the world.
If you bought investment property over the past few years with a lot of leverage based on pro forma projections that rents would go up at 10% a year or so, yeah you have a problem.
If you are a longtime landlord, or got into the rental market on conservative assumptions, no big deal. Now is the time to get your properties improved fairly inexpensively, and perhaps pick up extra units, and price them so that the overleveraged competitor can’t keep up.
If you have a 2-3 bedroom, 1800-2000 square foot property in North County, you are likely going to have no problem getting it rented at the upper end of market rates.
Hi Jim,
I think there is a third assumption that you didn’t find. W.C. Varones got it.
USA Today cited a survey saying that 70% of foreclosed-home occupants (whether they owned the home OR just rented it from a specuvestor) moved in with other people instead of renting out a new place!
70%!
What really shocked me was that that percentage didn’t change even if they were just *renting* the foreclosure.
So all those investors who bought figuring the foreclosure boom would cause a rental spike may be in for a big surprise.
W.C.’s got it — in a deflationary environment, everything loses value. Rents, home values, stock market…they all go down in tandem. Even gold doesn’t really rise — gold is a hedge against inflation, not deflation. Now how long the deflation will last is anyone’s guess, but I’d say we have another good year or two of it ahead.
-Erica
I have a friend who sells title insurance and last year he said he was happy with the new administration and they are doing the right thing. She also said rental rates were going to increase so more will be looking to buy. I don’t think she counted on the tax payers subsidizing the banks/lenders enabling them to hold their inventory. She also didn’t see the economy taking a turn for the worse and increase in available rentals. Either way, he is in a good position, because every home that sells requires title insurance (I’m pretty sure at least).
“Shoppingaround said…Thank goodness we have that fine SD weather to keep drawing people (what does Washington have?).”
One word – JOBS!!! It takes a heckuva lot of people to print all that money!!!
The 70% number is very interesting; many people have speculated that there will be an increase in living “density” (not sure what the official term is, basically number of people per physical house) as the recession carries on, but I haven’t seen any sold numbers. If that statistic is accurate, that means we’ll have a lot more inventory coming onto the rental market regularly over the next few years, as the Alt-A collapse plays out, and the various bank subsidization programs run their course. That should, in turn, drive down prices a bit more as investors adjust their cash-flow projections, and maybe take some of the more reckless speculators who are competing for REO’s now with it.
It’s so nice to see that market finally making progress toward housing affordability, after all the speculation and ridiculous bubble heights, and despite all the government’s efforts to manipulate the market and keep housing out of reach to people who refuse to mortgage their futures or join in the “get rich quick” speculative madness. Go free market, go go free market. 🙂
Amen, Nick!
I always learned that 3% is considered 100% occupied when it comes to apartment investing(move-ins/outs). We are spoiled here in SD. 5% vacancy is hardly panic and should have been penciled-in when the investor purchased the complex. Rents are still strong and stable, and most people I talk to who own, or manage, apratments in town say it is still business as usual. Look to places like Phoenix or Vegas and you’ll see panic–how does $10-15K a door sound–that is what we have been paying.
Out here in Riverside, the rent vs. own proposition is currently favoring owning. I could rent out my new house for double my monthly payment (including taxes and insurance).
geotpf,
Do you know if vacancy rates are higher in Riverside county? It seems that if rental rates are double the monthly payment of the mortgage wouldn’t that make Riverside a prime spot for investors?
I’m not saying Riverside county; I’m saying the city only. No way would I try to rent out something in Hemet or something. Plus, I believe I got an above average deal on my house; your mileage may vary.
My advice, for a rental, would be to go for UCR students and buy a house near there. I don’t know vacancies, and my house isn’t near UCR, but I’m just going by things like Craigslist, and what the government would pay for a section 8 rental. Vacancies are always a problem, especially in areas with high unemployment.
In any case, I’m living in my house. 4 beds and 1750 sq ft beats a 1 bed apartment and less than 500 sq ft.
“in a deflationary environment”
$3.00 gallon of gas today. Some odd figure of zeros quantitatively eased, and around the world.
If you know this game well enough to call the shots, real estate is small compared to the money made elsewhere.
3 clicks,
Title insurance is not a requirement of buying. It is however required by the lender. Check out the trustee auctions. No title insurance required!
Rents are still dropping in UTC. They’re also continuing to construct new units by the hundreds and extending the road near the 805.
I reported this rent information on Friday, too, along with some anecdotal information about tenants negotiating lower rents and landlords adjusting their sights lower: http://bit.ly/UdjzL.
One guy in my story found a two-bedroom house in Del Mar that was renting for $2,600 and convinced the landlords (would-be home sellers who are waiting for the market to turn) to let him pay just $2,200. Yes, that’s likely extreme, but it’s happening out there.
Kelly Bennett
voiceofsandiego.org