Monday, May 23, 2005

Over-Capacity Fuels "Renters Bonanza"

It's a "Renters Bonanza" the TriCity Herald reports. "As occupancy rates drop in the Tri-Cities, renters are getting move-in incentives and a choice of amenities. Vacancy rates, which averaged about 3 percent in 2002, increased to 9 percent in Richland, 11 percent in Kennewick and 8 percent in Pasco."

"Pasco's vacancy rates will probably catch up soon. Permits have been issued for three new apartment buildings at Chapel Hill that will add 668 units, bringing the city's total number 1,959. 'There was a lack of complexes in Pasco, but now that's taken care of,' Sylvia Erickson said. The landlord profits are done for too!

"The average price for a two-bedroom in Richland is $667, compared with $708, the average price in spring 2003. The average rent for a one-bedroom Kennewick apartment is about $486. In Richland, it's $563, and in Pasco it's $524."

"Those selling include San Francisco-based developer Robert Young, who has placed his eight properties on the market. 'I'm bullish on the Tri-Cities. I've always been bullish on the Tri-Cities.' So why is he selling his eight apartment buildings? Young said he wants to devote his energy to a commercial development he is building."

"It could be one of the best times to sell an apartment building in the Tri-Cities, said David Eagle. (He) said many investors are turning away from primary markets like Seattle, Portland and Los Angeles, where real estate prices are extremely high and the opportunity for growth limited. He said they're looking more seriously at 'secondary' markets."

20 Comments:

At 4:07 PM, Blogger John Law said...

I wish just one person would take the money and run.

 
At 4:50 PM, Anonymous Anonymous said...

Low rents are because of high home prices and Fed wants that so it fits in CPI numbers posting "low" inflation and therefore only modest increase in social security checks that same Fed has to issue.

Alan has a plan, next Fed chief will have the same plan. Artificially boost the economy with housing boom. Eh maybe 2010.

 
At 5:03 PM, Blogger deb said...

There is a manic psychology at work that is much bigger than AG. I agree he has magnified the problem with policy. However, the housing boom is a world wide phenomenon.

It is amazing to watch what will surely be looked back upon as a financial mania on par with the great ones (tulips, south sea, railroads, 1920 Florida RE, etc.). This one is bigger because it is occuring in many places around the world all at the same time.

Like all great bubbles, it's foundation is buyer psychology. It will pop when that foundation begins to weaken.

John Law: We did!

 
At 6:19 PM, Blogger John Law said...

I hope to read about you in the paper!

 
At 6:28 PM, Blogger deb said...

John Law,
I mean, we sold our home and didn't buy in again (cleared $500K! at the ripe old age of 36). Is that what you meant by "take the money and run"? It sure felt like that's what we did!

 
At 6:31 PM, Anonymous Anonymous said...

This was kind of amusing. Apparently anyone mentioning a bubble is just envious of homeow[n]ers.

http://www.inman.com/inmannews.aspx?ID=46298

 
At 6:45 PM, Blogger JLP said...

Well, I'm a homeowner and I think we are in the midst of bubble. There's a lot of "investors" who are going to get caught holding the bad when this thing busts. You guys should see the latest issue of Fortune and Money magazines - there's a sign if I ever did see one.

JLP

AllThingsFinancial

 
At 6:53 PM, Anonymous Anonymous said...

6L31 -- the article was written by a mortgage broker, of course.

 
At 6:54 PM, Anonymous Anonymous said...

From the Economist 3/3/05:

"America's ratio of prices to rents is 32% above its average level during 1975-2000. By the same gauge, property is "overvalued" by 60% or more in Britain, Australia and Spain, and by 46% in France.

"The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier. To bring the ratio of prices to rents back to equilibrium, either rents must rise sharply or prices must fall. Yet central banks cannot allow rents to surge as this would feed into inflation. Rents directly or indirectly account for 29% of America's consumer-price index, so rising inflation would force the Fed to raise interest rates more swiftly, which could trigger a fall in house prices. Alternatively, if rents continue to rise at their current annual pace of 2.5%, house prices would need to remain flat for over ten years to bring America's ratio of house prices to rents back to its long-term norm. There is a clear risk prices might fall.

"Today in many countries it is much cheaper to rent than to buy.

"...a new study by the National Association of Realtors shows that one-quarter of all houses bought in 2004 were for investment, not owner-occupation.

"Since 1950 American house prices in real terms have risen by an annual average of just over 1%. To expect them to rise faster from their current dizzy heights smacks of irrational exuberance, to say the least."

 
At 7:26 PM, Anonymous Anonymous said...

As the lyrics go in a country music song that I like, relative to low rent prices:

"I like it, I love it, I want some more of it."

 
At 8:40 PM, Anonymous will said...

As Prices Rise, Homeowners Go Deep in Debt to Buy Real Estate

I don't have access to the WSJ but I saw this artice referenced here:

http://bigpicture.typepad.com/comments/real_estate_/index.html

anyone read the whole thing ?

 
At 10:10 PM, Anonymous Anonymous said...

Closehaul said...

I read that WSJ article.
One comment that some interviewed in the article made stuck with me (I'm paraphrasing here):

That people using their home equity to buy investment properties is akin to the use of margin during the 2000 stock bubble.

I had several friends lose it all to margin calls in 2000. I'll have even more friends lose it all to foreclosure this time around.

 
At 10:38 PM, Anonymous Anonymous said...

"I'm bullish on the Tri-Cities. I've always been bullish on the Tri-Cities.' So why is he selling his eight apartment buildings? Young said he wants to devote his energy to a commercial development he is building."

Boy is this some bullshit! This person is heading for the hills! He knows to jump of the train wreck.

 
At 11:09 PM, Blogger JLP said...

"Boy is this some bullshit! This person is heading for the hills! He knows to jump of the train wreck."

Yep, that's exactly right! He won't say his true feelings until he has sold all his apartments.

JLP

AllThingsFinancial

 
At 2:10 AM, Anonymous Bazooka said...

"America's ratio of prices to rents is 32% above its average level during 1975-2000. By the same gauge, property is "overvalued" by 60% or more in Britain, Australia and Spain, and by 46% in France."

Sometimes I get irritated when I hear pundits mention these figures as if to say that "our bubble isn't so bad, just look at the UK"! First of all, I don't believe that the US will overheat as much as those other countries before experiencing a correction. The US is a much larger economy than all of those countries (combined?) and therefore it takes a lot more hot air to inflate bubbles here. An 80% to 200% overvaluation in the coastal markets still only translates to 32% nationwide when you factor in a lot of the red states. Once again, who cares if there is a national bubble when CA, NY, FL, and many of the other biggies are in a horrific bubble?!?

CA is definitely slowing in terms of sales volume. This is a matter of fact and is not conjecture or wishful thinking in any way. Also a matter of fact is that lower median prices always follow lower sales volume, although there tends to be a several month lag. Thanks to all of the spec/refi/arm/io activity, there is virtually NO CHANCE of a soft-landing. I personally know several people who have had to reduce their homes several times here in Sacramento because they're not selling (mostly higher-end stuff 700K+. Low end still selling well.)

These are all of the signs of an RE bubble and now the slowly-changing psychology element is turning in favor of the bears. GET OUT NOW WHILE YOU STILL CAN!!!

-end of rant-

 
At 5:16 AM, Blogger realist said...

who says there is no affordable housing. in most parts of the country, even in the bubble areas, rents are as low as they were 10 years ago, if you take inflation into account. stop thinking about the two million homes being built per year as over building, and think of them as affordable future rental units.

think about how we are shrinking our budget deficit. it's going from 412 billion to 350 billion. give thanks to housing's pumpers and dumpers. tax money is pouring into the u.s. treasury. does the government want that to stop? look what happened when it stopped after the stockmarket crash. we went from surplus (domestic) to deficit. keep the rates low. keep the booze flowing. eat, drink and be merry, for tomorrow we WILL die.

 
At 7:02 AM, Anonymous Anonymous said...

I wish these low rents would occur here in las Vegas. I pay $900 w/o utilities for a small 2 bedroom? Is there light at the end of the tunnel?

 
At 7:07 AM, Anonymous Jim in Venice said...

"I wish these low rents would occur here in las Vegas. I pay $900 w/o utilities for a small 2 bedroom"

Come to LA and see if you wouldn't kill for a 2 bedroom for under a thousand. You've got low rents.

 
At 7:34 AM, Anonymous Anonymous said...

Jim in Venice: I realize this isn't your end of LA, but here on the east end of town, near the east end of Pasadena in Monrovia, Arcadia, Alhambra and Sierra Madre, you can find two bedroom apartments for about $900/month. That's near the low end, but they do exist (I know, I have some friends who are teachers and they live together in one.) Go a little further east and they get bigger. BTW - the equivalent home on the same block is selling for $400K, which is way overpriced.

 
At 8:41 AM, Anonymous Jim in Venice said...

"here on the east end of town, near the east end of Pasadena in Monrovia, Arcadia, Alhambra and Sierra Madre, you can find two bedroom apartments for about $900/month."

We'll probably buy in that region once this thing cools off. I've always liked the foothills.

Until then, we'll keep our bargain rent here near the beach!

 

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