Landlords' new weapon: financial education

In many depressed real estate markets, monthly mortgage payments have fallen below average area rents. Rents are falling to narrow the gap, but the National Apartment Assn.has begun a campaign to make consumers aware of the true costs of home ownership.

The group has put together an "are you ready for home ownership" quiz,filled with the kinds of basic questions seemingly ignored during the housing bubble. Examples: "Do you know how to calculate your debt-to-income ratio?" and  "Have you factored in the total costs of owning a home beyond the mortgage payment?"

Perhaps even more useful than the quiz, which in the above link appears on the Indiana Apartment Assn's website, are articles on the site that advise potential buyers on the impact of maintenance costs, taxes and 100% financing on long-term home ownership. 

Yes, promoting renting is obviously in the interest of landlords, but putting out more information to prevent uninformed home purchases is surely helpful, isn't it ?   

--Peter Y. Hong  

   

Do you agree with Barney Frank?

When I was in Washington, D.C., last week, Rep. Barney Frank (D-Mass.) and a couple of other politicians addressed a group of journalists gathered on Capitol Hill to cover the administration's overhaul of finance rules. I hesitated to blog on it because have you ever heard the man speak? It's a stream of mumbling.

With that caveat, he said a couple of discernible things worth recounting.

No. 1: "The notion that homeownership is a universal goal is greatly flawed," Frank said. There are people "for whom rental housing is ideal." His point: Homeownership society thinking contributed to the housing bubble.

No. 2: "The ability to securitize 100% of loans caused the bubble," he said. One of the critical changes going forward is that lenders keep some "skin in the game," he said, and retain at least a 5% stake in the loans they make.

I agree on No. 1 and, as for No. 2, I think a 5% stake is better than nothing, but I have no idea if it's enough.

And while we're talking about having skin in the game, he concluded with this idea: When home prices appreciate, a lot of problems can go unchecked and unnoticed. "But when the tide goes out," he said, "you can see who has been swimming naked."

-- Lauren Beale

Thoughts? Comments?

Photo: Rep. Barney Frank (D-Mass.) says lenders need to retain at least a 5% stake in the loans they make. Credit: Brendan Smialowski / Bloomberg News

L.A. rents down again

Residential rents in Los Angeles and Orange counties fell in the first quarter of this year compared with a year ago, the research firm RealFacts reported today. The average L.A./OC rent for the first quarter was $1,604, down from $1,646 in the first quarter of 2008 -- a 2.6% drop.

Falling rents mean continued competition for entry-level homes for sale. If rents keep dropping, we'll see what effect it has on home prices.

-- Peter Y. Hong

Apartment rents fall in Los Angeles County

Apartment rental rates are inching down. The Times' Roger Vicent reports on the findings of a new study at latimes.com:

The average rent in Los Angeles County fell almost 4% in 2008 as apartment occupancy rates dropped and new units came online. The decline should continue this year as more renters lose their jobs, according to the annual USC Casden Forecast expected to be released by the university today.

"In L.A. County alone, 41,000 people moved out of apartments last year compared to the 29,000 people who moved in during the last five years," said forecast director Delores Conway.

To keep their units occupied, some landlords are lowering rents or offering concessions for signing a lease, such as a month of free rent or a reduced deposit, she said.

Rents should level out in 2010 as the economy recovers, the report said. The average one-bedroom apartment in Los Angeles rented for $1,397 a month at the end of last year.

Is it just me or does that still seem like a lot to pay for a one-bedroom rental? More on specific neighborhoods:

The Westside remains the priciest, while Pasadena and Burbank are stable with little change in occupancy or rents. Rents in Hollywood and central neighborhoods such as downtown Los Angeles are being weakened by new condominiums that are being leased rather than occupied by owners.

The San Fernando Valley should continue to see lower occupancy rates and rents in the near term because of layoffs in the area.

I would be curious to know what sorts of deals, gimmicks or incentives L.A. Land readers are encountering in the rental market. Compared with the price tumble in the housing market, 4% sure seems minimal.

-- Lauren Beale

Thoughts? Comments?

Photo: A newly built development on Olympic Boulevard in Santa Monica has 365-square-foot "studio loft" apartments for rent at $1,327 a month. Credit: Jim Simmons

 

Rent-versus-own balance shifting

As home prices continue to drop, the rent versus buy equation keeps changing. From "Renters lose edge on homeowners" Wednesday in the Wall St. Journal:

Now, after two years of rapid home-price depreciation, the relationship between the cost of rental payments versus after-tax mortgage payments is tilting toward ownership in a number of metropolitan areas.

Over the past 18 years, after-tax mortgage payments have averaged 26% more than rent payments, according to Green Street Advisors, a real-estate consultancy based in Newport Beach, Calif. In 2006, at the height of the housing bubble, mortgage payments reached as high as 66% more than rent payments. But by the end of 2008, average monthly rent for the largest 50 metropolitan areas was $1,045, compared with after-tax mortgage payments of $1,300, assuming a rate of 5.5% on a 30-year fixed mortgage. That means mortgage payments averaged just 24% more than rent payments, the narrowest gap since 2001. ...

In Los Angeles, for example, mortgage payments averaged 60% more than rent payments between 1990 and 2008. Now, those payments average 30% more than rent.

"We're not saying on an absolute basis that it's cheaper to own a home, but on a relative basis ... owning is looking much more attractive than it has in a long time," said Andrew McCulloch, a Green Street analyst. While the shift doesn't mean that renters will rush to buy homes soon, "it's not a 'no-brainer' anymore if they're going to rent versus own," he said....

Carla Zeineh, 22, and her husband recently began shopping for a home in Irvine, Calif., and discovered that with a 5% mortgage rate, her monthly payment on a $350,000 two-bedroom home with 20% down could be less than the $1,800 month that they pay in rent on their two-bedroom condo.

Between the $8,000 first-time home buyer tax credit from the stimulus package and the $10,000 incentive for Californians to buy newly built homes, the rent-versus-own tipping point may not be far off for some.

-- Lauren Beale

Thoughts? Comments?

Photo: San Pedro's Walker Avenue has a mix of owner-occupied homes and rentals. Credit: Lauren Beale / Los Angeles Times

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