Rent Hikes? Shouldn’t it be “Rent Drops”?
Sometimes I’m told I can overanalyze things, just ask my poor, sweet husband. I’ll analyze something until I just straight confuse myself. So, maybe you can help set me straight on this one…
Last week, I read Jon Lansner’s post “North County sees biggest rent hikes” talking about rent levels in Orange County. According to Real Facts (measuring “asking rent”), Stanton and Fullerton recently had the biggest annualized rent hikes. Following these cities were all other OC cities with some sort of rent hike, except for only three cities that had rent declines (Rancho Santa Margarita, Placentia, and Newport Beach). So, the majority of OC cities saw rent increases.
When I first read this, I was really surprised. We’ve got more and more people unable to sell their homes. Many have taken them off the market and just turned them into rental properties. A job relocation, growing family, divorce, you name it, could force people out of their homes. But, in this market, who wants to sell? In 2006, we moved up here and have been leasing out our San Diego condo ever since… even then we didn’t want to take a hit and sell. So, with more and more people following in our footsteps, wouldn’t we be seeing a drop in rent prices. Wouldn’t there be an influx of rental units saturating the rental market, increasing supply, and lowering rents? Now, this my right brain speaking, because I’m basing my theory mainly on personal experience, observation, and feeling.
Okay, let’s hear from my left brain, the logical side that bases things on real data… the side that is on vacation a lot since I’ve been pregnant (again, my poor, sweet husband). We have record numbers of foreclosures and lowest home prices in years. In addition, we have an outbreak of banks going belly up because of their crazy, unregulated lending practices. The Mortgage Lender Implode-O-Meter currently reads that 269 major U.S. lending operations have “imploded” since late 2006. So, now, my left brain says to me, with so many people losing their homes to foreclosure (unable to pay their adjusted mortgage payments, needed to move and couldn’t sell, or just plain gave up on the market), there’s less homes available for occupancy (stuck in foreclosure/REO-sale limbo) and yet more people are on the streets looking to rent. This would actually cause an increase in rents (increased demand, decreased supply).
However, the decreased supply may not be true. A few years back, developers hopped on the condo conversion band wagon. This was the hot ticket for a hot real estate market. Get in, flip ‘em, and get out… with a huge chunk of change. Well, some were a little late to the party and now find themselves with vacant “unsellable” units or in the middle of building units that are slated to go nowhere. Developers are looking to make these units into rentals instead. One development in Boca Raton, Florida may even be forcing current owners out to turn the 75% vacant buildings into rentals. Depending on how many of these units have been put up for rent, supply may be up enough to mitigate any increase to demand.
Ok, one more thing…. inflation. Inflation tables do show that inflation is on the rise. And, it has increased, in the past year, about how much the middle cities increased in their rents. So, maybe that’s all it is… plain old inflation. Sounds too easy. And, with food and gas being more expensive, wouldn’t that make people willing to spend less on housing?
I feel like I’m going in circles over this issue. Enough to make me dizzy. Chime in and help me sort this one out… what do you think?
