As prices fall, rents rise

Good morning. The graphs at right say it all, or almost, but I will throw in some words too. From this morning's L.A. Times:

"Apartment rents are indeed climbing, hitting an average of $1,494 a month in Southern California for the last three months of 2007, an increase of 4.5% over the same period a year earlier, according to a survey of larger apartment complexes by RealFacts, a property research firm. ...In fact, home values and rents often move in opposite directions, real estate analysts said."

More: "The downward pressure on house prices and the upward pressure on rents are in some respects reciprocal of one another," said Stuart Gabriel, director of the Richard S. Ziman Center for Real Estate at UCLA. "The two go hand in hand."

Caveat: The rent number is an average, and most statisticians prefer a median.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com

Comments

[Dr. JwB]

Hmmm, somethings fishy. Between the dots it goes up in one and down in the other . . . oh . . . the data defined by the dots in the two diagrams are not for the same dates. So whats the point of the dots?

Rents have gone up steadily, while housing prices have gone up and down. So they aren't anti-correlated except for the last year. The general anti-correlation relationship cited in the article may be true, but this data is not the strongest argument.

So what is the background of this "property research firm"? RealFacts? I wonder if they have an agenda. Rents are going up! Buy now!

And how much of that is just inflation?

[Jeremy Miles]

If we're going to get picky, the rent is mean, and most statisticians prefer a median. (There are several kinds of average - mean, median, mode are the most common three.)

[amir]

As stated in the article, this is a short term phenomenon.

In Florida, riverside and other locations where the full power of the crash already happened, rents are dropping as well.

At a certain point, unsold inventory becomes new rental property. It's now beginning to happen in SFV. I see more and more new houses that are rented after being on the market for a year. Also, a massive amount of condos are either for sale, or still in construction!

Sale prices in the city have not collapsed yet so rentals are steady or rising. Their day will come in twelve to eighteen months.

The other factor is that with the end of the bubble recession will start and rents will drop with it. Rental prices are more related to income levels than asset prices since there's no loan involved.

Long term rental prices follow asset prices.

[Anthrodiva]

The OTHER story MSM isn't covering here is that we are fresh out of buyers for the reason that they all got used up in the frenzy. Instead of a slow steady supply of Gen Xers and Y entering the market (I am 40 and have yet to own) they all jumped in at once. The best case scenarios from the bubble are:

You retired and bought a condo in Florida from your home sale - no more purchases lie ahead.

You sold your starter home and upscaled. That's it, you got nowhere more to go until incomes change, alot.

You were able to buy your starter home. You now sit for the next 5-10 years until your equity allows you to consider a moderate trade up.

and that's it. All that's left in terms of people who qualify are bitter renters. And I am waiting until reality sets in.

[CD]

I agree with Amir, this is a short term phenomenon.
Too many unsold places are now for rent and more to come down the pike.Beside workers will start moving out of state to places they can afford and get a better life. In the business section LA times: Safeway is slowing down as people are spending less due to inflation. Yesterday Costco was packed as in " Xmas packed". People go where the bargains are. Inflation, inflation...

[mike]

amir.....

you have absolutly no clue of the volume of avilable renters in los angeles. it would outstrip the supply if 50 % of the houses in the valley forclosed. did you read the article and what it said about westside rentals????

[xtine]

"All that's left in terms of people who qualify are bitter renters."

What's with the term "bitter renters?" I see it all the time on this blog and I'm getting confused as to the meaning.

I am glad I did not buy. I am thankful for my cheap, rent-stabilized apartment because it allows me to live without worry.

I'd love to buy when I can afford a neighborhood I like. We're saving to do so. What's the problem?

Am I pleased about government bailouts and the whining of regretful buyers? Certainly not. Does that make me bitter?

So, am I bitter? Is everyone who rents bitter? What's with that term and what is it supposed to mean?

[Neekolaaz]

Dr. JwB hits it right on the head. If you make a statement like "Housing prices are falling, therefore rents are rising!", you can't cherry pick the dates for which the data fits your hypothesis.

Since housing prices have only been falling for ~12 months, perhaps we just haven't yet seen the decrease in rent prices? i.e. a time lag... we shall see. At some point, it all comes back to affordability - how much rent / mortgage can someone pay?

Unlike JwB, I don't think there's any sinister agenda here, I think someone just wants to tell a story because it sells newspapers (or attracts attention to their firm, or generates blog hits, etc.)

[Tom]

From UCLA's premise, rental prices would fall when housing prices rise. Did your reporter do her homework to see if this held true during the bubble years? I doubt it.

Rental prices have not collapsed because they correspond to incomes. Home prices do not, so they must continue to fall until they do.

Until then, more overpriced houses will be available for rent, driving down rental prices.

[MyLessThanPrimeBeef]

The downward, what is it, let me look it up again, ok...'The downward pressure on house prices and upward pressure on rents are in some respects reciprocal of one another...They go hand in hand.'

Unless...

Unless, when house prices are going up, then rents also go up - see above charts, from late '04 to early '07.

That's not 'OPPOSITE DIRECTIONS!!!!!!!!!!!!!!!!!!!!!"

Sorry, didn't mean to yell so early in the morning...

So, what we have here is, you might live or you might die, but you have to pay your taxes, or something like that.

[Susan]

I used to wonder how some of the bubbleminium owners in my area (North Redondo) could maintain their monthly payments. Scanning Craigslist, I think I know - they are renting out rooms.

When desperation sets in (we're not there yet), people can opt to pack up and leave the area (I know of a few who've done that), or households can double up (a la 1930's). Such measures will pressure rents back down.

[GeekSeek]

Occupancy rates are lower by 1%-1.2% for these large compexes in l.a. and orange counties since last year. Maybe we're already seeing the effect of the some people moving to rental homes, to smaller buildings, or moving elsewhere? The rental price data is probably meaningless (and the occupancy rate could very well be overstated or misleading -- they're just based on calling up mgmt companies and asking questions). Someone, call up the utility companies and get actual occupancy numbers for all multifamily properties. Send me the numbers and I'll graph them (or better yet, send to Peter's staff ) The truth is out there.

[mbob]

Diva d'Anthro

You must not have slept through your classes.

IMHO you are spot on, as our UK cuz'ns say.

My recurrent theme in these hallowed digital halls: get to know your neighbor, grow a garden, join a church or a bowling league, settle in where you are; it's going to last a stretch.

[CD]

PETER, check out Bloomberg.com The article is :
-Banks lose to deadbeat homeowners as loans sold in bonds vanishes.- The loan was sliced like a salami and sold and now they do not know who owns the note.
This is so good, it's like a Mel Brook movie.

[BAD PUPPY KID]

Hate it or love it! I got in on this intrest only loan scam and pulled through!! I didn't refinance my home to death nor did I accept every credit card offer the banks threw at me. I pay cash for everything I need. If I cannot pay cash, I leave it alone. I knew that my loan was suspect, but i had to make that leap if I ever wanted to realize my dream of home ownership. Thank god my father gave me good financial sense. I am currently refinancing my home at a fixed rate. My wife and I can afford our new loan and are happy that the original intrest only loan gave us a chance to get in the game. I know alot of people are hurting right now and my heart goes out to them. The reality of the situation is you only get one shot to make it. People have to suck it up, make lemonade out of lemons, squeeze water from rocks and do whatever it takes to hold on to your dreams. Make it happen!! I'm a 35 year old African- American male in Los Angeles dealing with gang violence, police brutality, racism, racial tension and sky-rocketing gas and food prices. If I can do it you can to. You have no excuse! Quit crying and suck it up!!

[GeekSeek]

Hmmm... the other thing to think about is the financing on apartment buildings. Over the last number of years, apartment buildings have been more frequently purchased with very low cap rates, sometimes not even returning a positive cash flow after loans and other expenses -- the buyers banking on that gogogo upupup california real estate trend. So there are probably many that are fighting like crazy to keep their rents propped up just to hang on to their building. Those jingle mail envelopes might start going letter and legal size right about now.

The larger complexes will have much better terms and leverage with their lenders and can afford to be be "stickier" on their rents, but I'll bet that the under 100 unit crowd is feeling a lot of pressure.

Let's revisit real occupancy and rental rates in 3-6 months and see what's happened.

[Jeff]

Geek Seek is exactly on target. The article makes the claim that the increase in renters from people who don't have homes is putting pressure on prices.

Yeah, then why is occupancy down. That number jumps out on the page and the article doesn't even mention it.

Clearly rents are not going up because of increased demand. End of story!

Why are rents going up? That is a good question and we lack the information to answer it. Statistical anomaly in the mean? Hard to say.

My best guess is a change in the rental mix. More "solvent" people have moved into the rental market so the mix between low income housing and more normal housing has skewed to the upper end.

But that doesn't make an interesting article. And the LAT can't print another sob story about how bad times are. We all know what sells paper, blood (gang violence) and tears (the displaced renters).

[Kathy]

One of the key factors in the diminished supply of rentals in Los Angeles was completely overlooked by the reporter of this story; the removal of literally thousands of units by developers who bought and demolished those buildings to put up condominiums. It has escalated as an issue to the L.A. City Council a number of times, including last year when they tripled the relocation costs for displaced renters.

[amir]

Hey Mike,

LA is a very big county. There are many available houses and apartments in Encino and Reseda where RE prices are already going down. Maybe that's not the case in Hollywood or Beverly Hills.

All I'm saying is that rental prices follow asset prices eventually. In the meantime there could be a spike, but it won't hold once recession hits and many simply leave LA. That was the case in 1991. We're only at the beginning of a multi year down cycle.

You need to look at area by area and you'll see houses and apartments for rent appear about a year after a massive asset decline. That's the story in riverside, beginning to happen now in SFV, and will happen in the city by 2009.

[The Problemwithcaring]

As stated in the article, this is a short term phenomenon.
In Florida, riverside and other locations where the full power of the crash already happened, rents are dropping as well.
At a certain point, unsold inventory becomes new rental property. It's now beginning to happen in SFV. I see more and more new houses that are rented after being on the market for a year.
Posted by: amir |

Occupancy rates are lower by 1%-1.2% for these large compexes in l.a. and orange counties since last year. Maybe we're already seeing the effect of the some people moving to rental homes, to smaller buildings, or moving elsewhere?
Posted by: GeekSeek |

Hmmm... the other thing to think about is the financing on apartment buildings…there are probably many that are fighting like crazy to keep their rents propped up just to hang on to their building. Those jingle mail envelopes might start going letter and legal size right about now.
Posted by: GeekSeek |

Clearly rents are not going up because of increased demand. Why are rents going up? My best guess is a change in the rental mix. More "solvent" people have moved into the rental market so the mix between low income housing and more normal housing has skewed to the upper end.
Posted by: Jeff |

yes, yes, yes, and yes.

There are some smart folks on this blog.

Who wants to rent in one of these cramped and antiquated, or roach-infested sprawlplexes masquerading as "communities," anyway, when all these folks are renting out houses, guest houses, condos and spare bed rooms for half the price?

[puckhead]

"I am glad I did not buy. I am thankful for my cheap, rent-stabilized apartment because it allows me to live without worry.

I'd love to buy when I can afford a neighborhood I like. We're saving to do so. What's the problem?

Am I pleased about government bailouts and the whining of regretful buyers? Certainly not. Does that make me bitter"

You live in a RENT STABILIZED apartment and yet you rail against GOVERNMENT BAILOUTS???? Mr. Pot, meet Mr. Kettle.

[Hula Girl]

Could it be a matter of perception by the landlords?

I can't help but think that landlords reading this sensational headline wouldn't hesitate to rent their rates based on a news story that doesn't show the whole picture.

Landlords can smugly raise the rent, until they can't anymore. Then vacancies will rise along with defaults.

If folks couldn't afford a $1600 house payment, how will they afford the rent? Not to mention tuition for private schools when hundreds of teachers are unemployed and all children are left behind.

The damage inflicted by this recession/depression will make New Orleans look solvent.

Welcome to The United States Of Katrina.

We'll are presently in the eye of Hurricane Bush.

[Keith - letitsink.blogspot.com]

Hey Richard Ziman,
Maybe you could explain how, given substitute goods, that the fall in a price of one would cause an increase in the price of the other. Isn't it more accurate to say that those graphs show absolutely no correlation at all? One is a horseshoe shape, and one is a straight line. Plug those into a stats program and tell me the correlation.

Furthermore, as Amir mentioned above, the huge inventory of empty houses is going to be lived in by someone eventually. Even if rents have gone up recently, they cannot go up for long once currently empty homes are purchased or rented.

I think what is likely is that this part of the article - "according to a survey of larger apartment complexes" - is producing garbage data. Managers/owners of big complexes might want to claim rents are going up so people will be more willing to pay higher rents. And furthermore, by definition this leaves out of consideration all of the small apartment buildings, and the individual condos, and single family homes that are likely to be put out for rent if they can't be sold.

Nice garbage data.

[GeekSeek]

Apologies in advance for multiple posts, but this was particularly interesting:

The source of the data, Real Facts, published this back in mid November - just 3 months ago: "WHAT IS THE EFFECT OF THE CURRENT MORTGAGE PROBLEM ON RENTS?"

"...our conclusion is that there has been no effect on the rental market"

"http://realfacts.com/11132007.html

(Keep in mind that it seems they looked only into 3 markets -- San Joachim [sic] County, Las Vegas, and Phoenix. Um, plus how much faith do you want to put in their numbers when a company that deals with real estate data gets the name of a county wrong?)

[GDC]

Why are people so surprised that rents are going up? It's obvious - homes are too expensive to buy. People keep coming into this state and can't afford a starter home so they rent. People come to SoCal because compared to other parts of the country, there are high paying jobs (also weather, beaches, diverse ethnic population, etc). Also, people graduate from high school and college and move out on their own. They can't afford to buy so they rent. If their starting income is high, they spend more on rent; if the income is low, then they spend less.

People here have been complaining for months that the rent v. buy calculation does not match up. So that is exactly what is happening now - home prices coming down and rents going up. This will not stop until it reaches an equilibrium.

[suz]

I am tired of hearing about bail outs to home owners and poor them. I am tired of hearing about the need for tax breaks for these people. I really think that people who rent should be given tax breaks so that they can become the next home owners and so that they can continue to afford the apt they are in thanks to this scam on the American people. How about making all interest again tax deductable to help with the game that the banks are now playing of raising interest on credit cards rates so that they don't have to have any losses.

[Nancy]

A lot of people are becoming landlords to cover their hefty rising mortgage payments.

I know many people who haven't moved in years (including myself) because of the rising rents. And notice that occupancy level has gone down. I live on Dickens St. in the Valley, and some 1-bedroom dump "One cover parking very nice and quite place" across the street from me, "Close to Trendy resturant and shops," is going for $1295. They started at $1400 in October, and have slowly reduced it over the last 5 months. But still no takers. Not shocking considering the property had broken sprinklers, dead grass and garbage strewn on the front lawn.

[Roger Moore]

"My best guess is a change in the rental mix. More "solvent" people have moved into the rental market so the mix between low income housing and more normal housing has skewed to the upper end." --Jeff

Not to mention that there are a lot of expensive complexes coming on line. There were a ton of new condo developments and apartment conversions that missed the peak of the market. The builders and renovaters can't sell them for the price they want, so they're renting them out instead. Those are mostly high-end developments, so they skew the mix of available rentals toward the high side. We really need a matched pair type measure like the Case-Schiller index for rentals.

[toby]

First of all your graph shows that rents increased along with property values.

All your graph has shown is that rents haven't drop along with property values.

Which isn't surprising since property owners are freaking out and are reluctant to lower rents.

What you need to be looking at is vacancy rates.

For example, every apartment building on Whitley Ave (Entertainment District in Downtown Hollywood) has a For Rent sign.

That's over 20 buildings on the same street. In the hottest neighborhood.

That is not a sign of a booming market.

BTW, been a big reader of your blog for a very long time, but frankly, this post is so....wrong, I just got for the first time, a bad taste in my mouth.

The graphs just show that rents are slower to react to a downward market, and the quote to support the graph is well, beyond weak.

The simple truth is (and a rule of thumb for more than 40 years) rents are pegged to mortgages.

One goes up, the other goes up, one goes down, the other goes down.

In fact, if you know a market, ANY MARKET, were the average mortgage payment is lower than the average rent.

I would like to actually see that...LOL...if it ever actually existed.

[blaise5000]

I would love to see the following 2 statistics:
1) median household income of people who own their homes
2) median household income of people who rent their homes.

[sharkjumping]

I agree with toby. From the headline: "as prices fall, rents rise" to the cheerily stupid introduction "Good morning. The graphs at right say it all" this post is just WRONG.

The graphs are particularly misleading and on blog that spends so much time parsing through the value of stats, to throw this sh!t up is kinda Iseman-esque.

Very Gretchen Morgenson of you.

[Tombstone Realty]

Being that I am a renter trying to go from a studio to a one bedroom - I've been looking at the prices for my area- Pasadena.

What I've noticed is this: lower-end apartments (duplexes or complexes, doesn't matter) are going *up* in price. You can't find a 1 bedroom for less than $1250, and most are in the $1325-$1400 range. HOWEVER, higher priced places, such as the Archstone properties, or Trio - their prices are going *down*. You can get a studio now for $1900.

((Don't laugh- they give you granite in your tiny kitchen! It makes it seem larrrrger. ))

Point being, the figures aren't reflecting this. The likely reason is that lower-income people, who are getting thrown out of their houses at a greater rate, are returning to the type of properties they were in before homeownership, so that would raise occupancy rates for those of us with no alternative BUT to rent.

But those in the 'affluent' bracket aren't losing their homes at the same rate, they don't need rentals. They are also more likely to view a home as an investment, rather than "arriving", and would just move to their property in Texas and let LA's foreclose. There aren't enough rich people for the pretty condos that are STILL going up here.

Unfortunately, I am in the 'low-income' side of things, by LA standards, and not sure I'll be able to afford to stay.

[OoogaMooga]

My stock broker buddy has a coworker who's Jewish. He has a word that sums up the situation.

Farkakt.

:-)

[OoogaMooga]

blaise - what planet have you been living on lately?

Inflation is raging like a teenager's hormones. Real income has shrunk in the last five years. Price increases for things like milk, eggs, and gas have far outpaced wage increases.

An increase in median incomes doesn't mean anything.

[Jon]

The fact is, is that So. Cal population continues to grow and the supply of housing, whether it is rental or owned, will keep growing with the demand.

Yes, a recession may slow the growth. But even a recession will probably not even cause a population decline in So. Cal. Partly because it is still such a popular place to live and partly because the recession will probably effect the rest of the country as well.

This current economic issue is really just a bad mortgage issue and not a typical recession/loss of jobs type issue.

The population of So. Cal will continue to grow for the forseeable future and therefore the housing supply will also grow. Supply and demand.

[Dr. JwB]

I guess I don't really think there is a sinister agenda, but I always wonder about motivation.

So label me "suspicious", as opposed to paranoid.

[Milo]

Aw, well, I do like this graphic and I'm feeling chatty so I'll pitch in.

I don't think there's much to second guess about Delores Conway's analysis here. Certainly in my neighborhood over the past few years people were almost always moving out to buy; why can't that trend reverse itself and people stick around until ownership pricing adjusts to more closely track household incomes.

Maybe it's notable that rental occupancy is up in those counties where we're seeing today's worst housing bubble impacts and jobs are weaker, whereas rents are up most where impact is not as strong and the job markets is also stronger/ deeper.

Perhaps we are seeing different indications in these different rental/ownership markets of the same universal market circumstance, which is one of renters choosing to continue renting and not buying.

LA/Ventura already has higher occupancy rates that can't go much higher given there must be a natural turnover rate of 3% to 5% no matter what, and those areas also have stronger job markets. So you'd expect that higher demand for rental in these areas would take the form of rent increases because there's greater price elasticity in response to demand. Versus the outlying areas where occupancy is lower and income is lower.

I do suspect that we're seeing lower turnover in larger rental units where the owners would otherwise decide to buy, but as Roger Moore noted it's not broken out.

Following Tom's comment, rents are driven by demand/supply of the product and by income/wealth of the renters. So regardless of what's happening with ownership, demand for rent will remain strong esp. in LA./Ventura/Orange until a broader recession hits and jobs suffer. Mortgages for rental are sized in response to what rents will support and that's why this data tracks.

But I can't say I agree with the conclusion that rental prices will drop much. I just don't think there's enough new ownership product, outside of the new suburban fringe housing tracts, to really support the argument that the rents will drop because ownership product is being rented out instead. I ithink it'll take a recession for that to happen in most of LA/Ventura/Orange, except as an observable blip in the data. However, the Inland empire and Riverside, that's another story-- I'd hate to have recently bought a multifamily building full of three-bedrooms in Riverside right now. I'd be interested in what Conway would say about that regional breakout as well.

Even if newly built, individual projects do not perform well in terms of their own profits and loss bceause their thousands of new high-end units must come onto the market as rental instead of ownership, that doesn't mean the overall rental market with its millions of units must decline as a result. I think we'll see softer rents but only to the extent that a recession (weaker job market) triggered by all of this will reduce demand for any housing at all.

Partly, I am thinking about how the amount of product caught in the pipeline during this market shift couldn't come anywhere close to making up for the amount of rental product that has converted to condos in the past couple of years. We've been losing existing rental product while ownership has increased. Demand is deep. Perhaps it's not inaccurate from a tenure perspective to say that we're adjusting back to a more natural ratio for an urban environment.

Regardless, new supply is seizing up again so we're looking at maybe 12-18 months of new product still under construction, and it's all at the higher range, before growth of supply slows sharply again.

[Laker]

toby, you are so correct. "property owners are freaking out and are reluctant to lower rents....What you need to be looking at is vacancy rates...."

I personally know a house that is sitting empty with FOR RENT SIGN for the last 14-18 months. This is a nice house 4/2 2000 sqft in woodland hills.
Why? The owner wanted back in July 2006 $3200 for it...no takers... slowly he reduced asking rent but always is behind the market now asking $2500 and no takers...The owner lost about $30,000-45,000 in rents....just because he was reluctant to reduce rent...
So toby is so correct.
I also seen 2 blocks from there an owner, that had his house for rent for 1 month...he was asking $2500 for slightly smaller house, then reduced to $2200 and rented it- being smart!
However, you can see the picture, rents are going down. looking at vacancy rates will prove that beyond a doubt. I see so many for rent signs that i almost wonder if all the "for sale" are just getting to be "for rent"... Those that are upside down on their mortgage and are trying to rent, are asking crazy high numbers as to cover their super duper inflated mortgage payments....guess what - 100% of these are empty and 99% of them are in some sort of foreclosure process....These are REO getting to be born...
Peter, our blogger, did a mistake here by having this headline "As prices fall, rents rise" and by trusting data by this RealFacts company...
One thing for sure, their facts are not real and actually smell with NAR stinking manure smell...
We should forgive peter, as even the best man in town can occasionally make a mistake...

As some have suggested here, rents are directly correlated to mortgage payment. Again i repeat mortgage payment not mortgage amount. That is particularly true about the last years are the mortgage payment rose 3-5% annually while yes, yes, mortgage amount rose almost exponentially. For those that are confused here, the reason was the "special" mortgage products like IO, Neg am, that allowed amazing affordability to have low payments by huge house...

Even in lancaster, one of the "most" affordable places, a 4 bed 2000 sq foot house rents for $1000 while the mortgage payment is about $1500...

[Martin]

This article is such a simplication -- and, to a degree, misrepresentation -- of the true real estate rentals market.

As a West San Fernando Valley landlord who often speaks with other landlords and building managers throughout the Valley, Westside and Hollywood/Silverlake area, I can say without hesitation that the rental market is already impacted by the general economic lethargy that seems to be growing week by week. I know landlords are seeing their apartments remain vacant for longer stretches of time than were seen these past few years. Some complexes are offering move-in incentives. I personally just rented an apartment to a new lessee. Rather than risk possible vacancy between tenants, I increased the rent a grand total of $10 ... just to emotionally feel like I moved forward at least a baby step. Last year at this time I would have increased rent on this particular space between $100 and $125.

Yes, rents did go up this past year. But 4.5% is not all that high. I believe Los Angeles County rents increased 7.5% during 2006. I also would bet my new $10 of monthly cash flow on the claim that you will see average rents increase less than 4.5% during 2008.

[toby]

Milo, let me explain a misconception on THIS housing bubble.

The market run up wasn't due to people MOVING into houses. The market run was do to overzealous speculation on investment opportunities and free money to invest with.

MEANING: House flipping.

Buying a house, and then either fixing it up and then putting it back on the market or just putting it back on the market to sell for a profit.

Because of this, there will be no BIG influx of old renters becoming new renters again.

As you stated in your post, rents are subject to supply and demand. This is true for both rents and mortgages.

So why can I ask, if this is true, did rents skyrocket during the big run up on the housing market?

Because rents are pegged to mortgages AND there was NO big drop in demand due to renters moving into homes.

Now if demand dropped during this time, then rents would have dropped, but since demand remained steady, they property owners were able to raise rents due to the old saying "it's still cheaper than buying".

So to answer everyones question of when will all these newly lost homeowners move back into renters? NEVER. Since most of them never moved into their new home, there's no big movement back.

So yeah, what you see today regarding rent increases is false hope from desperate property owners.

Much like how everyone 6 months ago was saying that Expensive neighborhoods are completely shielded from market downturns.... 6 months from now, the renter's market will be next to collapse.

[Landburger Geissler]

I own an 11-unit, rent controlled, apt. bldg. in
Beachwood Canyon, Hollywood. During the last
turndown in SFH/Condo RE, I remember seeing
only 90% of my 1990 rent totals by summer 1993.

Right now, I've had three vacancies in the
past four months(writer's strike?) which I am
filling (with improvements) in 6-8 weeks
at previous rental prices. No increases.
I just rented a decent 660 sq.ft., oak floor,
one-bedroom with parking for $1250.
I see similar priced apts in the surrounding area
asking $1400. or more. These are sitting 3-4 months
or more. No takers.

It appears to me that the pressure is already on landlords.
I see no ability to increase rents in this area.

[Owen Thomas]

One possible reason for the increase in rents is speculators who overpaid during the bubble who are raising rents to maintain positive cash flow. A variant on this scenario is landlords buying or refinancing with some species of variable mortgage which has begun to reset. Commercial real estate at least has the potential to pass along increases to the "consumer" whether they stick or not is another question.

[Susan]

Kathy brought up an interesting point about all the rental units that have been demolished for new luxury condos or some such nonsense.

Excess greed drove renters out - now what goes around may come around, as condo owners go bust - we may see condo developments turned back into apartments.

[Hula Girl]

OoogaMooga, Farkakt? Feh! Must be lost in translation - not a Yiddish word. Maybe he said..

Farcockt: All crapped up. (see Alta Kocker) "It used to be a nice neighborhood, but now it's all farcockt." As an adjective, it's "farcockteh." "This is a farcockteh neighborhood."

Or
Fartik: finished, ready, done.

Both are apropos.

[Roger Moore]

"Being that I am a renter trying to go from a studio to a one bedroom - I've been looking at the prices for my area- Pasadena.

What I've noticed is this: lower-end apartments (duplexes or complexes, doesn't matter) are going *up* in price. You can't find a 1 bedroom for less than $1250, and most are in the $1325-$1400 range." --Tombstone Realty

You need to cast your net a little bit wider. Just checking the LA Times classifieds shows that you can get a 2 bedroom in Pasadena for $1250, and a 1 BR for as little as $850. They may not be in fancy complexes or within easy strolling distance of Old Pasadena, but those places are still in nice neighborhoods. You can find some excellent deals if you're willing to put some effort into it.

[Milo]

I believe this data is actual rents and not asking rents?, so I don't see what's false about it. The question is what could one conclude as a result. Landlords who overpaid might feel desperate but it doesn't explain the rents that renters are willing to pay.

I would agree that demand for higher end rentals is sensitive to what's available for purchase and you'd expect that an entry level home in the same area might 'naturally' be just a step up in terms of monthly payments from a larger apartment; so we'll see what happens during the next two years.

I think what Roger notes about lower size units possibly rising in price is interesting--- because if there's less turnover in larger units right now, the lack of availability would likely put pressure down the line.

So if vacant 'flipper' homes are common enough that they could push rents down and we'd see it make its way down the line. But I don't think they're as common relative to the market size until you drive all the way out to the greenfield development. I think we're entering a major recession and I think that will account for the lion's share and not the amount of empty product on the market.

[Uncle Billy]

Milo, why assume these are actual rents? We don't have any information about how the information was collected or what the data represents except that it covers some larger complexes in 6 counties, nor does it cover any free rent or other concessions given. Plus, it's been established that the company publishing the data aren't exactly sticklers for accuracy.

Methinks there are a lot of half empty buildings out there still trying to look good, happy to propogate the illusion that they're at 95% occupancy and renting at at hefty rates.

[Tombstone Realty]

Trust me, I live here. The cheaper places are all in the northeast part of town, and they have swat teams.
$850 isn't worth getting shot. And they are closer to Old Town than I am.

If I had a car, I'd just move to Glendale or Eagle Rock, and drive in.

Besides, you been to Old Town recently? Even the chi-chi stores are being pushed out because of, that's right, high rents and no profits. That strip will be empty in a couple years. Check out all the vacancies at Fair Oaks/Colorado.

As for the Flipper discussion - that is true to a small extent here, but most of the flippers bought in Vegas, not California. For what you'd pay 400,000 for in 2004 California, you could get for $150,000 in 2004 Vegas. Right now, there are stories about Summerlin being 40% vacant.

[thomson]

stats are surprising but useful as to choose between buy a house instead of renting one.