H/T The Housing Bubble Blog. This is an article from the Wall Street Journal from October 28th:
"Despite all the gloom, some people believe it isn't too early to pick up bargains. One key, they say, is a deep understanding of the local demand for rental housing.I've been watching rental asking prices stay fairly flat in the Northern Virginia suburbs, with plenty of inventory. I've been wondering if the recent buying spree will lead to a large amount of rental supply, pushing rent prices down, or if the inability of people to purchase (foreclosure on record, etc.) will make renting more competitive. Does anyone see early signs if either? It's somewhat difficult to see trends during this cold season, of course.
Dinesh and Rima Kumar, who live in Ashburn, Va., last month bought a town house in Sterling, Va., a suburb of Washington, D.C., for $154,000. The same home sold in June 2005 for $375,000 to a buyer who used subprime loans to finance 100% of the price. It went into foreclosure late last year. Mr. Kumar says he has found a renter at $1,500 a month. The Kumars, who paid cash for the home, calculate their monthly expenses -- including taxes, insurance, maintenance and fees -- at $491 a month.
The couple made the plunge partly because Ms. Kumar, a real-estate agent for Realty Direct, noticed that homes in the area priced at $250,000 or less were attracting multiple offers. Home sales in the northern Virginia suburbs of Washington totaled 3,360 in September, up 92% from a year earlier, according to the Northern Virginia Association of Realtors. The average price: about $333,000, down 32% from a year earlier.
"This could be the bottom," Mr. Kumar says, and even if it isn't, "the down side on a $150,000 property is pretty low." Moreover, he has been burned in the past by stock-market investments and thinks rental income will far exceed the meager interest rates offered on bank deposits."
9 comments:
I don't know where to get good data, but purely anecdotally: rents are going up 1-3% yoy overall in Fairfax and Arlington - consistent with what was an inflationary year until recently. Of course rents are down mtm due to the seasonality. I'm not expecting the deflation to hit rents here anytime soon. Rents really only drop when there are major job losses - none of those here yet.
blacksilver: Although this is anecodotal, my landlord did not raise my rent this year. This doesn't surprise me, as based upon the vacancy rate compared to last year (this is a nice quiet place not far from a metro station), I don't think raising rents would have been a smart move.
Does my former management company's check for the return of my deposit bouncing count? Seems to me as if it means cash-flow is tight for rentals. When that will result in rent-decreases is another matter.
(they had asked us for a 7%!! rent increase to stay there if we re-signed)
(they're mailing us a new check btw).
My wife and I have been mulling over the purchase of a rental property in Arlington. Although we have not been seriously looking, my back of envelop calculations say it only makes sense if you are hedging on a strong increase in rental rates in the near future.
(my soapbox comment)
i think the root cause of this recession is that housing expenses had eaten up too big of a chuck of people's disposable income. when in the bubble years many workers in their prime earning ages had to spend over 50% of their DI on mortgages (a bit less for rents but not by much), that was money going down the drain. it created/supported no economy activities other than CDS and 'instruments' alike which contributed nil to productivity nor standard of living, yet made people look/feel rich on paper.
(off soapbox)
mm,
Hear! Hear!!
Financial stocks doing well is a drain on everything else. Their role needs to get back to facilitating the rest of the economy not a growth industry in and of itself. The biggest winners in the bubble run-ups were the banks being able to charge interest on ever increasing amounts of debt. Given the extremely low interest rates this may have been their only option for profitability...
Grow the economy through greater disposable income! That's the way to go.
bubbleboy: Personally, I would not bet on significant rent increases in Arlington; I think mostly flat with small 1-3% increases per annum continuing. Arlington already had a huge rent runup from 2000 - 2008. That was the result of good economic times and an influx of new people. That has stopped.
Buy/rent ratios could start to normalize for condos in Arlington, but with the glut to sell, it will be hard to raise rent too far above where it is.
I'm not an expert on purchasing properties to rent, but the closer in you go, the riskier it will be unless you can find a very desperate seller or a good fixer-upper. Owners are just too far underwater. Back to the original WSJ article, if those numbers are real than that couple is smart. There are a lot more opportunities in Fairfax and Loudoun than I would expect in Arlington.
mm,
I concur, I graduated in '05 magna cum laude from an excellent engineering school. I came to work and thought WT#, this is all I can do with my education. I wasn't expecting to live lavishly, but a heck of a lot better than as a college student. I got married and thought WT# again, how am I ever supposed to get ahead in life with my income and insane living expenses.
Bottom line from '01-'05 there was massive inflation (take a look at monetary growth charts) nobody ever noticed it as inflation b/c it was in housing and higher housing prices are always good right? . . . unlike higher food and gas prices?
I have yet to figure out why the massive inflation in housing prices never really trickled into incomes (maybe b/c the CPI didn't state 10% YOY inflation thus fooling companies and individuals into thinking there was no inflation?).
You now have massive credit deflation occuring, yet at the same time the monetary base is inflating like crazy (83%).
If you remember back to '01 everyone was screaming deflation and the Fed pumped money and gave us the housing bubble.
It will be very, very interesting to see what happens once this credit bubble deflates with the massively expanded monetary base.
Well, I rent at Lee Square apts in Falls Church. First few years, $25mo increase yoy. Last year, 5%. This year, SR Mgmt upping by 5.36%, gougers. Clearly they haven't got the message and from their business-as-usual form letter, they imagine they have such wonderful complexes (NOT: weedy lawns, windows never washed, single-pane windows, etc etc). I am now looking to move. AVOID SR Management Properties (Lee Square, Dolley Madison).
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