Rents Mirror House Prices
One would think that with so many people waiting on the sidelines to buy a house and with so many others losing their houses that population demand would cause rent prices to increase. In the most bubblicious areas of the country, the opposite is happening. Rents are decreasing.
That gives you an idea of exactly how overbuilt some areas of the country are.
Vacancies have risen in 29 markets in the fourth quarter of 2007, including Las Vegas, Palm Beach, Memphis, Orange County, Calif., and Orlando, according to Reis Inc., a New York real-estate research firm. Ron Witten, a Dallas-based housing analyst, estimates there are 760,000 vacant condos and homes for sale nationwide beyond what the market could normally carry, in addition to a surplus of 350,000 vacant rental properties.
Speculative building and investing have contributed to this problem. Remember that investors were buying multiple properties at a time with no exit strategy. California flopper Casey Serin purchased 8 homes and didn’t rent any of them. The specuvestors profiled in 2005 also bought multiple homes, gambling on appreciation for their profits. Demand from investors prompted builders to keep on building. Now these properties find themselves back on the market with little demand.
Lower rents will place more pressure on investors trying to stay afloat while further decreasing demand for investment properties. In Utah, I don’t think we’ll see a downward pressure on rents yet. We have to remember a lot of residential building was completed leading up to the 2002 Olympics. That glut, combined with the recession of 2001 kept rents low. Record low interest rates made it cheaper to buy and many did. The rental market in Salt Lake didn’t begin to stabilize until 2005.
As part of my research for this story, I checked both Craigslist and KSL.com. There are a lot of rentals available, particularly in northern Utah County. Some of the prices looked reasonable, while many others looked a tad too high. I suspect current market conditions will soon place downward pressure on rents, but I don’t think anything too disastrous will occur. When foreclosures begin to climb here again, we’ll start to see price adjustments for both rents and house prices about a year later. Unless government takes aggressive action we’re probably going to follow the rest of the country.