Saturday, January 20, 2007

L.A. Times: Upward rent spiral may be slowing down

If you've been equally as frustrated by surging rental costs as much by housing costs, take heart. We know the Los Angeles bubble is unwinding in many areas, and now it looks like rents are starting to weaken too. I've been holding the opinion that a rental surge here can not last for very long, because one of the things that frustrated homesellers who can't unload their houses do is - try renting them out. This is increasing the supply of available rentals, which will put downward pressure on rents. Homesellers who were asking for unrealistic selling prices are now applying the same philosophy in what they are asking for rent. It won't work, and those looking to rent will probably look elsewhere. I posted about this on December 26. On July 21 we noted an L.A. Times story that discussed the surge in rental prices here in the West.

Now L.A. Times bubblewatcher Annette Haddad in this January 18 story notes that the increase in rents is slowing substantially. Taking their cues from builders, landlords are offering incentives - to move in. According to the story, there is a boom in apartment construction, though I can tell you anecdotally that I haven't been noticing any affordable apartment construction here in the South Bay or westside - some luxury apartment construction, but nothing what I would consider reasonable and affordable, like what I live in now. If anybody reading this knows about the construction of affordable apartment housing in this area, please let me know! I really doubt anything is being constructed though, because the economics for affordability just aren't in place.

The average rent in the six-county southern California region rose 6.4% to $1,422 YOY, while the occupancy rate fell by 0.6% to 94.3%. Indeed, some households are doubling up, a strategy which was practiced in the 1930's, exacerbating real estate markets in that era. The Riverside-San Bernadino county region saw occupancy drop 3.7% between the Q3 and Q4 2006, which was the biggest quarter-to-quarter drop of the 28 markets surveyed by RealFacts.

The Inland Empire area had 4,200 new apartments come on line in 2006, and softening rental prices are a given. Here in the Los Angeles-Orange county area, rents are still increasing, with the average rent increasing 7.4% in Q4 2006. But occupancy is falling also, down 0.8% in Q4 to 95.2%. About 2,100 new apartments came on line.

The article describes the experience of a landlord with six vacant condos in Riverside, unable to rent them out at $1200, and still unable to rent them out at $895 to $950. Does this sound familiar?

The southern California housing market is undergoing chaos. And to think we haven't seen The Major Decline yet - this is just the opening act! If people are not buying homes at the pace they once did, and they are refusing to rent at current prices, then they may well be seeking greener pastures elsewhere.


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