[quote author="Informed_Decisions" date=1224919470]To read the full story, please click here;
<a href="http://www.mercurynews.com/realestatenews/ci_10763983">http://www.mercurynews.com/realestatenews/ci_10763983</a>
Rising rent coupled with investors purchasing foreclosed homes to use as rental properties has made it more difficult for many renters to find affordable rental housing.
MAKING SENSE OF THE STORY FOR CONSUMERS</blockquote>
There several reasons why I think this article and the intentions of the one posting the article are misleading and excluding many important facts. As a long time and mostly respected IHBer, and someone who is a rental property owner, I feel that I owe everyone a more in depth explanation as to why that is.
First of all, this is an article from the SAN JOSE mercury news. One would think a person with knowledge of the local market would post an article from a LOCAL source with the LOCAL numbers. Say maybe an article from the <a href="http://www.ocregister.com/">ORANGE COUNTY register</a>? I dunno, but there may be a few less informed readers here that have never heard of <a href="http://lansner.freedomblogging.com/">Jon Lansner and his blog</a>. I guess if you needed a Realtroll to provide with LOCAL market data, then you might have missed <a href="http://lansner.freedomblogging.com/2008/10/16/oc-sees-smallest-rent-hikes-in-6-years/4873/">Lansner's post from the same source on the LOCAL numbers</a>. If you are an intelligent and informed IHBer, then you would have even read the post <a href="http://lansner.freedomblogging.com/2008/10/17/north-county-draws-largest-rent-hikes/4939/">that breaks down the numbers on an even more LOCAL basis</a>, that includes the Irvine numbers. Now that would be way more LOCAL than an article based on county that is nearly 500 miles from here. More on the numbers later.
There is a huge difference between San Jose and OC. Well, they both have a bunch of ugly stucco boxes built from the 50s to current with a bunch of strip malls, but there are differences. The main difference being job creation. Santa Clara/San Jose has created <a href="http://www.calmis.ca.gov/file/lfmonth/sjos$pds.pdf">700 jobs, or 0.01% YOY</a>, whereas <a href="http://www.calmis.ca.gov/file/lfmonth/oran$pds.pdf">OC has lost 29,600 jobs, or over -2.0% YOY</a>. You can say that the jobs lost were in the financial and RE fields, but the Professional and Business Services lost 9000 jobs, or -3.3% YOY. This is the same sector that was supposed to be the one to save OC according to UCLA, USC, and CS Fullerton forecasts. BTW, and no offense to those who actually learned something from USC, but they have been the absolute worst in forecasting. OC is at the same job level as we were in 2005, meaning three years of job growth have been wiped out, and that includes the Professional and Business Services sector at the 2005 level. Since IHBers have been accused of not being able to provide a credible analysis of supply and demand, well there you have it. People with jobs are the demand, and since they keep decreasing, then OC needs to go back to the demand levels pre-2005.
<blockquote>? The demand for rental housing is increasing as more former home owners, whose homes were foreclosed upon, enter the rental market. This is driving up rental prices and making it more difficult for renters to find affordable housing. Statewide rent in complexes of 100 units or more averaged $1,449 in the second quarter, a year-over-year increase of 4.4 percent, according to RealFacts, a Novato, Calif.-based research firm.
? More investors than in previous years are purchasing foreclosed houses as investment properties and using them as rentals, rather than primary residences. This has negatively impacted traditional rental communities, as demonstrated by the slight decrease in occupancy rates. Apartment complexes were 95.6 percent occupied in the third quarter, a slight decrease from 96.7 percent a year ago.
? It is recommended that homeowners who have a foreclosure on their credit record continue to pay their other financial obligations and not accumulate more debt, which could adversely affect their ability to qualify for rental housing. Generally, landlords will consider renting to a tenant with a previous foreclosure on their credit record, if the renter otherwise has good credit and can explain the circumstances that led to the foreclosure.</blockquote>
<em>
<a href="http://lansner.freedomblogging.com/2008/10/16/oc-sees-smallest-rent-hikes-in-6-years/4873/">Apartment tracker RealFacts reports that Orange County</a> rents at the county?s largest complexes it watches averaged $1,603 a month,<strong> up 1.8% in a year. That rate of increase was the smallest since the second quarter of 2002.</strong>
http://lansner.freedomblogging.com/files/2008/10/blog-3qrent-rf-300x284.png
RealFacts found that <a href="http://lansner.freedomblogging.com/files/2008/10/blog-3qrent-rf-300x284.png">local rents, after rising at a 4.2% rate last year, have basically stalled in 2008</a>. RealFacts tracks 489 O.C. complexes with 123,902.
A key reason that landlords get small rent increases ? other than the economy is weak ? is that apartment shoppers have plenty of choice.
In the third quarter, 5.3% of units at the largest complexes tracked by RealFacts were empty. (And that doesn?t note the huge supply of vacant homes being rented out!) While the third quarter?s 5.3% vacancy rate is actually is down slightly from earlier this year, compare it to the 4.6% rate averaged in the previous five years.
(Nationwide, RealFacts found rent averaging $1,002 a month, up $2 in three months.)
<strong>
RealFacts isn?t the only rent tracker finding this O.C. stable-rent trend. Axiometrics found big O.C. landlords getting annual rent hikes during the third quarter of just 0.2%. That placed O.C.?s third quarter at No. 60 out of 88 U.S. metropolitan areas in terms of pricing power, by Axiometrics? math.</strong></em>
So... not only are rent increases going down, but vacancy rates are up above the average for large complexes, but there are a bunch of investors buying foreclosed homes to rent out. Therefore creating more supply. Why would you want to invest in a property that will only be adding to the supply? This would make you part of the herd behavior, and make you look really dumb when you could wait for prices to drop further and rents to stabilize. It really doesn't get much simpler than that on how to time the market, and monkeys could do it if they could read beyond what is being fed to them. If you are an active IHBer, and not someone who just stops by to post biased articles to drum up business, then you would know that several IHBers are negotiating and have negotiated their lease rates down, like SoCal78 has done. You would also know that Trooper has negotiated her lease down to a killer deal with her private landlord. Mind you, you would be a private landlord/part of the herd if you were to buy now. As a landlord myself I have not raised rents in over a year and a half. Why? Because on time paying tenants are worth more than the risk of getting new tenants at a higher rate, when that rate is not likely at in this market. That, and the fact that there are way too many rentals to compete with.
Now, to debunk the fallacy that landlords are willing to rent to people with a recent foreclosure. This is such BS I could puke, but it isn't worth losing my food for. If this were such a "hot" rental market, then you would have several way more qualified tenants than someone with a foreclosure on their credit report. I mean, IHBers who have not bought a home wouldn't even have a foreclosure. So lets say I have a unit available for $2k a month and only two prospective tenants: Tenant A (TA), who has a 540 FICO, because they have a recent foreclosure, a moderate debt level that has been paid on time, a debt ratio of 30% with the debt and the unit, a steady job for 4 plus years, and savings for a year of rent and estimated expenses (I have yet to see this kind of savings, but go with it. They could have saved that when they weren't paying their mortgage). Tenant B (TB) has a 740 FICO, moderate debt, a ratio of 30% if the rent were $1800, a steady job of 2 years, and savings for 6 months of rent plus expenses.
I am going to offer TA $2000 rent, but with 1 year of advanced rent due to their credit report. TA counters back with 6 months advanced rent, and a nice letter why they were foreclosed on, with a letter where they promise they have seen the light, read IHB, believe IR is the man, makes fun of skek, Ipo, and IR2, and have invested in the total opposite way of Panda.
TB offers $1800 a month with first and last, citing that is well within in their budget and that their impeccable credit report shows how they have been and will be consistent in paying their bills including the $1800 a month rent.
Which tenant will I choose? Well... the likelihood of TB paying me $21,600 over a year is a lot less riskier than TA paying me $12k over 6 months, only to not make the 7th month payment. Even if it only takes 60 days to find a new tenant after TA at the same $2k rental amount, I wouldn't have made as much from TB ($21,600) if I were greedy with TA ($20,000). Rents do not always go up, increasing vacancies suck, and as can been seen here and other threads of IHB, there is no shortage of rentals or that pesky thing called supply.
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Continued...
