Condo Conflict

What’s Happening with Rentals?

Recently I reported that the rental market may suffer from the number of unsold condos being rented. The theory was that rents would drop as the market became flooded with unsold condos going out for rent. The implication was that this would negatively affect condo sales as renters stayed with lower priced rental units. Today there is news that this may not be so simple.

A Marcus & Millichap report in the San Diego Daily Transcript suggests that as workers shift from construction to hospitality jobs, the demand for rentals will increase as the demand for home purchases decrease.

Additionally, few new apartments are under construction at the moment. About half last years’ number will become available this year. Vacancy rates are running in the low single digits and rental rates will rise about 3.5 percent in the course of the year. Despite the rise, M&M believes that renters will remain renters. Caution will also encourage renters to stick with what they have while the volatile real estate market works out its problems.

“While single-family home prices have receded recently, the median household income (the U.S. Census Bureau placed this figure at $56,335 in 2005) still does not meet the amount required to afford a median-priced home in the metro,” M&M wrote. SANDAG says the median price of a detached home was $580,000 in July, $417, 542 for an attached unit.

So what does this mean for buyers & sellers?

It seems to indicate that in the short term there will be few renters moving up to ownership. Despite a small rise in rent payments, purchase prices are still too high and the tendency toward lower paying service jobs will not support home ownership for many. Stricter financing requirements will also affect buyers in this price range.

This current condition will continue to depress the condo market, where entry is easiest for new home buyers. Sellers who can rent their units may be able to wait out the trend and sell later.

At the higher end of the market all of this seems irrelevant. Well paid executives, scientists, and engineers will continue to move up to better homes and the current market should encourage them if they can only get a decent price for their existing home.

I know that there are professionals and insightful readers seeing this report. What is your take on this? The comment link below is convenient for a quick comment that all can consider. I’d like to think that some of you have a more positive take on this than the Marcus & Millichap report.