Falling prices lead to lower rents.
Even after years of falling real estate prices in Miami it’s still cheaper to rent than to buy according to this article in the Wall Street Journal, sent in by bcbuds. As prices are falling so are rents.
It’s a dilemma for owners, do you try to wait out a recovery and pour money into the condo you’ve got rented out at a loss, or do you stop the bleeding and sell in a down market? Many are choosing to wait out the market and hoping for a recovery soon.
…But that has created a new, predictable situation. “Rents are falling,” says Miami broker Leslie Cooper. “You and your brother and everyone else is trying to rent your new condo out. So no wonder. But the rents won’t even cover your costs.”
I looked a number of fabulous condos in new developments on Brickell Avenue in downtown Miami. Their prices had been slashed drastically from peak levels. Some are now in forced sales.
You can get a two-bedroom condo in some places for $400,000 or less. And that’s considered a great deal.
Of course the problem is that even these reduced prices aren’t justified by the rental income. The article goes on to examine the numbers- even if you aren’t renting the money and have the $400k cash interest free to buy one of these condos it’s still a losing proposition in a post-boom era of property depreciation.
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May 26th, 2008 at 8:52 am
May 26th, 2008 at 9:17 am
Warren substitute Vancouver for Miami in the article above and it pretty much describes the discrepancy between renting and buying in Vancouver over the last few years. “Investors” have been bleeding for years in Coal Harbour and pretty much anywhere else in the Metro area. Rents don’t have to plummet here, they already are relatively low.
May 26th, 2008 at 9:28 am
Well no they don’t. Nominal rents in Vancouver rose during both the 80’s bust, and the 90’s bear market. There were some real declines, but there have been real declines during increasing prices too.
Just as rents don’t follow prices up during booms, they don’t follow prices down during busts.
What is bringing rents down in Miami is the same thing that is bringing the prices down - a serious oversupply of dwelling units. Vancouver never got to that in the 80’s (boom was too short) or 90’s (strong population growth up to mid-90’s).
This time, however, may be different.
May 26th, 2008 at 9:30 am
2008/01/2-bedroom-rents-up-41-per-month.html
I remember hearing that in Miami rent prices actually rose near the peak of the housing market as some people cashed out and rented - the problem is that as construction projects started during the boom completed, supply continued to grow while speculative demand evaporated.
May 26th, 2008 at 9:42 am
$1086? I’m renting a 3 bedroom/2 bathroom basement (clean, big) with utilities included for $1000.. its a deal.
Thanks for the link, I notice my own comment in there with the same details, heh.
May 26th, 2008 at 11:42 am
“Does anybody have any anecdotal or hard data for Vancouver?”
The condo rental market is tight, from what I’ve heard from a friend. I think for some types of units, specifically those that aren’t shared accommodation like condos, townhomes, and detached houses, there is always be demand from those in less superior dwellings (basement suites, shared rooms, etc.) looking to improve their lot.
From another source, finding a good tenant for a condo is hard. Think of it as a microcosm of “subprime”. There are some potential tenants that are more prone to default on their rent so a rational landlord would charge them a premium for accommodation. It is my feeling that when you see places being rented out for crazy sums it is often the landlords were forced to take a substandard tenant in lieu instead of offering a discount for a better tenant. The list rates for rentals does not account for the credit rating difference. As landlords become more desperate for tenants they will take on more risk and move further down the credit rating ladder to do it. In the end it all gets taken out in the wash but it takes time.
May 26th, 2008 at 2:17 pm
It would appear a lot of the people posting silly asking prices for rent on Craigslist are rookie landlords or people having fun seeing if they can get $1700 for a unit that would have rented for $1350 the last 7 years. Anyone who wants to take the time to read all the listings in the paper can do better than $1700.
When you hear people say they can’t find anything to rent they either
1.have serious issues on their credit report
2.have pets
May 26th, 2008 at 2:48 pm
May 26th, 2008 at 3:26 pm
May 26th, 2008 at 3:28 pm
May 26th, 2008 at 3:54 pm
bdk: are kids considered pets?
May 26th, 2008 at 4:55 pm
We close the sale of our current place in 3 weeks and the alternative to not finding a place would have been to move into the in-laws house. $600 a year is nothing compared to the emotional cost of living there…trust me
May 26th, 2008 at 5:10 pm
.
.
“It’s a dilemma for owners, do you try to wait out a recovery and pour money into the condo you’ve got rented out at a loss, or do you stop the bleeding and sell in a down market? Many are choosing to wait out the market and hoping for a recovery soon.”
You have to give credit where credit is due; Rob Chipman did say that negative cash flow and negative equity is a wise investment strategy;
Otherwise why would the smart RE investors hang on?
May 26th, 2008 at 5:51 pm
This is a fallacy, as we have previously discussed. If an owner sells and becomes a renter, his old residence gets added to the rental pool. One more renter, one more rental unit.
Suppose every owner in a city decided to sell and rent. Would rents go up? No, because the rental supply/demand balance would not change.
Rents depend only on the ratio of total households to total dwelling units, not ownership percentage.
The reason rents went up in the bubble cites is that a lot of rentals were converted to condos, and during the time the conversion was being done the units were off the market. Ditto old properties that were demolished for new ones.
May 27th, 2008 at 5:38 am
U.S. Home prices post record plunge
http://www.reportonbusiness.com/servlet … iness/home
May 27th, 2008 at 6:15 am
No it didn’t, it fell 14.4% (etc) YOY as of March 31.
Will these reporters ever learn to get it straight?
S&P Tables
May 27th, 2008 at 7:48 am
I have always felt from the size of the bubble and the overbuilding of condos that our market most closely resembles Miami…
The more these scenarios play out the more convinced I become that a 60 - 70% correction is what we should be anticipating here.
May 27th, 2008 at 7:59 am
http://www2.standardandpoors.com/spf/pd … 042952.pdf
May 27th, 2008 at 8:00 am
May 27th, 2008 at 8:38 am
May 27th, 2008 at 8:40 am
May 27th, 2008 at 8:46 am
1.have serious issues on their credit report
2.have pets”
Feh - I have pets and a BK 5 yrs ago. Finding a rental was a snap, and the credit prob meant I’m paying about $200/mo more than otherwise. Still socking away $.
May 27th, 2008 at 8:47 am
I wonder what effect flipping/ rehabbing has on a market - When a condo is being remodeled it is not in use as a housing unit either by the owner or a renter. I assume this happens on a much smaller scale than new construction and the turn around time is quicker as well, so it wouldn’t have a big effect on supply, but it must have some effect
May 27th, 2008 at 8:48 am
Oh right, I keep forgetting how many people like you there are in Vancouver. I’ll explain it for you in very simple terms.
The drugs just make it seem like you’re on a different planet.
May 27th, 2008 at 9:20 am
If you really want to use the, “We’re different.”, debate tactic maybe you should provide some reason why that might be true.
May 27th, 2008 at 9:22 am
What doesn’t the US have to do with us again Jun????? F#ck we have some ignorant people in this city.
May 27th, 2008 at 9:28 am
I have had to settle for the North Shore as that is where my son’s behavioral interventionists are located.
May 27th, 2008 at 9:40 am
http://classified.van.net/classified/cl … h?openform
… then search in the North Shore News
May 27th, 2008 at 10:11 am
I agree with all your points and would add one more. When prices are going up, more people are content to leave their “investment” empty (temporarily reducing supply). Who needs the hassle of tenants when your condo has gone up a few $100k? OTOH, when prices are flat and falling, you need that income to cover your costs and losses, and many of those places go back into the rental pool.
May 27th, 2008 at 10:18 am
“There’s more anectdotal info on what people are paying for rent in Vancouver here:
2008/01/2-bedroom-rents-up-41-per-month.html”
A lot of people suggested walking around the neighbourhood you wanted to rent in as a good way to find out the ‘real’ market for rents. Problem is I want to rent in yaletown, and I never see “For Rent” signs out. I think it’s probably a strata by-law. What’s the best approach in that case? Craigslist? Property Management Companies?
Also, if you’re a good prospective tenant, perfect credit, good reference, stable employment etc. Will a PM company do the leg work for you and call you when suitable properties come on the market?
May 27th, 2008 at 10:19 am
May 27th, 2008 at 10:24 am
downtown suites has pictures and specs of their units, bruce ward does too as does Unique Accomodations.
Those are 3 good sites to start with.
Walking around and the newspaper are the best ways to find decent prices. If you don’t mind paying more and having competition then go with craigslist.
May 27th, 2008 at 10:25 am
That is the best way to find a place to rent. Most people I’ve talked to who have a great deal found it that way. Its also a great time to check out the neighbourhood. Try it on a Friday night to see how busy/loud the area is, etc.
For Yaletown and downtown, it is more difficult. A lot of people post “for rent” posters in the mail area or lobby of the building. Doesn’t help too much if you’re on the outside looking in of course…
May 27th, 2008 at 10:27 am
May 27th, 2008 at 10:32 am
That government site links to several sites..
I didn’t mean to say people that can’t find rentals have bad credit scores, I just mean there must be more to the story since I have had my eyes trained on the downtown rental market for several years and don’t see where people that complain that they can’t find places are coming from.
Unless you’re bragging about how much pot you smoked while feeling up a hooker the night before on your cel phone during the viewing or raising a similar red flag it shouldn’t be a problem finding something.
May 27th, 2008 at 10:47 am
If you’re a low risk to default you should be able to command a lower rent. If a landlord doesn’t offer you a discount it means: they have lots of competition from other good candidates, they are ignorant good tenants command a discount, or you are a deadbeat and don’t know it.
May 27th, 2008 at 11:04 am
There is a clause in RTA that allows a landlord to raise rent to market rate if they can prove the current rate is below market.
If what you say is true then why are rents not raised the maximum allowable on so many places? It’s not that rents have become so much more expensive, it’s that rents have been systematically held below inflation for existing tenants for years. One should ask why this practice is so prevalent. And don’t say because landlords are dumb!
May 27th, 2008 at 11:32 am
“Roach noted that when asked, on average, 90 per cent of British Columbians said they expect to be living in B.C. five years from now.
For 18-to-24-year-olds, however, that number was 74 per cent. And 26 per cent said it’s unlikely they’ll still live in B.C. five years from now, up from the 12 per cent who said the same in the foundation’s 2006 survey.”
and
“The Lower Mainland, Victoria and Kelowna are all areas that have seen dramatic increases in housing prices, without commensurate increases in incomes that would pay for such housing.
“This is not a Tokyo or London or New York,” Finlayson said, where there are lots of high paying jobs.”
May 27th, 2008 at 12:12 pm
May 27th, 2008 at 12:33 pm
http://www.nationalpost.com/news/canada … ?id=544227
May 27th, 2008 at 3:44 pm
Renters can’t escape housing foreclosure crisis.
http://www.usatoday.com/money/economy/h … tion_N.htm
May 27th, 2008 at 3:55 pm
isn’t selling your first born a prerequisite for home ownership with the second payment being an arm and a leg?
May 27th, 2008 at 5:19 pm
That’s because the foreclosed units are sitting empty, reducing the total supply of shelter. This will work itself out when the units become occupied again (whether by renters or owners doesn’t matter).
BTW in BC tenancy rights are not affected by a change in ownership, including foreclosure. The new owner assumes all contractual obligations of the old one. Thus you will not see tenants evicted due to foreclosure, and I think you will not see large number of foreclosed properties sitting empty here.
May 27th, 2008 at 7:44 pm
May 27th, 2008 at 9:57 pm
But for an arms-length renter paying the going rent, you stay.
In fact during the 80’s bust it was common for the bank to pay the tenants to get out voluntarily so they could sell the house as a move-in. As the rental market was soft is was a good deal for the tenant.
May 28th, 2008 at 5:42 am
Interesting to note is that I am off the scale (as mentioned previously I live in a suite in Yaletown).
May 28th, 2008 at 5:46 am
That is how the theory goes, and I have often argued the same when somebody tries to argue that “rents will go up when prices fall because more people will buy and there will be fewer rental units availalbe”
Moronic reasoning aside, the rents in most speculative U.S. markets have fallen, the notable exception being San Francisco. Basically, the more overbuilding that took place, the more rents drop.
You are both correct. Falling prices don’t directly lower rents. The high prices leads to overconstruction. The falling prices cause “investors” to make better use of their resources (which means no more empty places), which leads to increased rental units on the market (all else the same). I haven’t read coco’s link yet, but I will see if that contradicts my data that rents DID fall in most cities.
May 28th, 2008 at 7:35 am
http://www.videosift.com/video/The-Housing-Bubble-Song
May 28th, 2008 at 7:48 am
37 here.
I live in a 1/3 share of a house but I know the value of the house and what the other tenants pay. What’s your number?
May 28th, 2008 at 8:03 am