Author Topic: Predictions are housing prices will drop; what about rents?  (Read 7896 times)

Mr. Green

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Re: Predictions are housing prices will drop; what about rents?
« Reply #50 on: January 20, 2024, 09:18:59 PM »
We're probably selling our Maryland townhouse in the summer. I wondered how appealing it would be for someone to buy. Likely sale price is 350-360k. Townhouses in our neighborhood are renting for 2.2-2.4k. Using the NYT rent vs. buy calculator and all the particulars for our house, the breakeven on buying w/ 10% down is less than 4 years compared to renting. I'd guess there will be considerable interest in our place.

Dicey

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Re: Predictions are housing prices will drop; what about rents?
« Reply #51 on: January 21, 2024, 04:30:57 PM »
Related: Our rentals do not make us rich, but they provide a steady, modest income. Our insurer just pulled out of our state, so whatever we can replace it with is going to cost a buttload more. I'm not sure we can pass all of the added cost through to our tenants. Bleargh.

Villanelle

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Re: Predictions are housing prices will drop; what about rents?
« Reply #52 on: January 21, 2024, 04:56:56 PM »
Related: Our rentals do not make us rich, but they provide a steady, modest income. Our insurer just pulled out of our state, so whatever we can replace it with is going to cost a buttload more. I'm not sure we can pass all of the added cost through to our tenants. Bleargh.

Your post about your insurance was one of the many nudges for me that led us to decide to [almost certainly] sell.  Our rental is in CA, too.

ChpBstrd

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Re: Predictions are housing prices will drop; what about rents?
« Reply #53 on: January 21, 2024, 07:24:30 PM »
https://www.usatoday.com/story/money/2024/01/19/renting-home-more-affordable/72274750007/
Quote
...its still more affordable to rent than own a home in nearly 90% of U.S. counties, according to a new report by ATTOM Data Solutions.
Quote
In nearly three-quarters of markets with populations of at least 1 million, the share of average local wages consumed by rent is at least 10 percentage points lower than the portion required for home ownership...

Every home has a "homeowner" whether they live in the home or rent it out. If the above statistics are true, it means most new landlords are buying an investment with long-term negative cash flows. Why would they do that? Perhaps demand for inflation hedges is a bit high after the experience of 2022, or perhaps demand for speculative growth with leverage justifies an investment which requires regular contributions of cash earned elsewhere.

What happens next depends on whether the national population of landlords gets sick of subsidizing renters. 

Tass

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Re: Predictions are housing prices will drop; what about rents?
« Reply #54 on: January 22, 2024, 09:56:06 AM »
https://www.usatoday.com/story/money/2024/01/19/renting-home-more-affordable/72274750007/
Quote
...its still more affordable to rent than own a home in nearly 90% of U.S. counties, according to a new report by ATTOM Data Solutions.
Quote
In nearly three-quarters of markets with populations of at least 1 million, the share of average local wages consumed by rent is at least 10 percentage points lower than the portion required for home ownership...

Every home has a "homeowner" whether they live in the home or rent it out. If the above statistics are true, it means most new landlords are buying an investment with long-term negative cash flows. Why would they do that? Perhaps demand for inflation hedges is a bit high after the experience of 2022, or perhaps demand for speculative growth with leverage justifies an investment which requires regular contributions of cash earned elsewhere.

What happens next depends on whether the national population of landlords gets sick of subsidizing renters.

Aren't you neglecting corporate-owned apartment complexes, aka the majority of places I've rented?

clarkfan1979

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Re: Predictions are housing prices will drop; what about rents?
« Reply #55 on: January 22, 2024, 10:13:25 AM »
https://www.usatoday.com/story/money/2024/01/19/renting-home-more-affordable/72274750007/
Quote
...its still more affordable to rent than own a home in nearly 90% of U.S. counties, according to a new report by ATTOM Data Solutions.
Quote
In nearly three-quarters of markets with populations of at least 1 million, the share of average local wages consumed by rent is at least 10 percentage points lower than the portion required for home ownership...

Every home has a "homeowner" whether they live in the home or rent it out. If the above statistics are true, it means most new landlords are buying an investment with long-term negative cash flows. Why would they do that? Perhaps demand for inflation hedges is a bit high after the experience of 2022, or perhaps demand for speculative growth with leverage justifies an investment which requires regular contributions of cash earned elsewhere.

What happens next depends on whether the national population of landlords gets sick of subsidizing renters.

Cash flow is overemphasized on this forum and not really representative of landlords in the "real world", IMO. Most landlord communities focus on building wealth first and then cash flow second. Seasoned landlords will accept a short-term negative cash flow (5-years or less) in order to acquire a "Class A" type of property. 

ChpBstrd

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Re: Predictions are housing prices will drop; what about rents?
« Reply #56 on: January 22, 2024, 10:43:07 AM »
https://www.usatoday.com/story/money/2024/01/19/renting-home-more-affordable/72274750007/
Quote
...its still more affordable to rent than own a home in nearly 90% of U.S. counties, according to a new report by ATTOM Data Solutions.
Quote
In nearly three-quarters of markets with populations of at least 1 million, the share of average local wages consumed by rent is at least 10 percentage points lower than the portion required for home ownership...

Every home has a "homeowner" whether they live in the home or rent it out. If the above statistics are true, it means most new landlords are buying an investment with long-term negative cash flows. Why would they do that? Perhaps demand for inflation hedges is a bit high after the experience of 2022, or perhaps demand for speculative growth with leverage justifies an investment which requires regular contributions of cash earned elsewhere.

What happens next depends on whether the national population of landlords gets sick of subsidizing renters.

Aren't you neglecting corporate-owned apartment complexes, aka the majority of places I've rented?
They still have owners, and they are rolled into the statistics. Interestingly apartment REIT stocks like MAA, ESS, and ELS seem to have missed out on the real estate boom, and are selling at about 2019 levels. This suggests they are coasting on the lower interest rates of the past until they have to refinance, while simultaneously facing both higher prices and interest rates as barriers to expansion. If there's not much to like about these stocks, there's not much to like about landlording.

Tass

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Re: Predictions are housing prices will drop; what about rents?
« Reply #57 on: January 22, 2024, 11:02:22 AM »
Aren't you neglecting corporate-owned apartment complexes, aka the majority of places I've rented?
They still have owners, and they are rolled into the statistics.

Yes, but what it would cost me to own a space equivalent to my apartment (which is the value I believe this study is reporting) is not the same as the per-unit cost to my corporate landlord who owns hundreds of them.
« Last Edit: January 22, 2024, 12:23:17 PM by Tass »

halfling

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Re: Predictions are housing prices will drop; what about rents?
« Reply #58 on: January 22, 2024, 12:14:54 PM »
https://www.usatoday.com/story/money/2024/01/19/renting-home-more-affordable/72274750007/
Quote
...its still more affordable to rent than own a home in nearly 90% of U.S. counties, according to a new report by ATTOM Data Solutions.
Quote
In nearly three-quarters of markets with populations of at least 1 million, the share of average local wages consumed by rent is at least 10 percentage points lower than the portion required for home ownership...

Every home has a "homeowner" whether they live in the home or rent it out. If the above statistics are true, it means most new landlords are buying an investment with long-term negative cash flows. Why would they do that? Perhaps demand for inflation hedges is a bit high after the experience of 2022, or perhaps demand for speculative growth with leverage justifies an investment which requires regular contributions of cash earned elsewhere.

What happens next depends on whether the national population of landlords gets sick of subsidizing renters.

"Landlords subsidizing renters" seems like an incomplete perspective? There will just be fewer newer landlords. If SFH-owning landlords locked in traditional mortgages pre-2022, they don't have to "subsidize renters" to turn a profit. And if they try to raise prices to match new mortgage expenses they will be competing against landlords with locked in lower costs. Landlords with variable rate mortgages still have to compete with those who have fixed rate mortgages on price. And they have to compete with more efficient apartment-style rentals on price; even if their house is bigger and nicer, they can only ask so much rent before they run out of locals who can afford it.

https://calculatedrisk.substack.com/p/nmhc-apartment-market-continues-to-d7e?utm_source=post-email-title&publication_id=443155&post_id=140648126

Quote
The 10-Year Treasury yield has dropped nearly a full percentage point since October, as core inflation continues to moderate and Fed officials signal likely rate cuts in 2024, noted NMHCs Senior Director of Research Chris Bruen. This has caused the availability of debt financing to increase for the first time in nine quarters.

Yet, the apartment market continues to record decreasing rent growth and rising vacancy rates as it absorbs the highest level of new supply in more than thirty years.
« Last Edit: January 22, 2024, 12:16:34 PM by halfling »

clarkfan1979

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Re: Predictions are housing prices will drop; what about rents?
« Reply #59 on: January 22, 2024, 02:29:17 PM »
https://www.usatoday.com/story/money/2024/01/19/renting-home-more-affordable/72274750007/
Quote
...its still more affordable to rent than own a home in nearly 90% of U.S. counties, according to a new report by ATTOM Data Solutions.
Quote
In nearly three-quarters of markets with populations of at least 1 million, the share of average local wages consumed by rent is at least 10 percentage points lower than the portion required for home ownership...

Every home has a "homeowner" whether they live in the home or rent it out. If the above statistics are true, it means most new landlords are buying an investment with long-term negative cash flows. Why would they do that? Perhaps demand for inflation hedges is a bit high after the experience of 2022, or perhaps demand for speculative growth with leverage justifies an investment which requires regular contributions of cash earned elsewhere.

What happens next depends on whether the national population of landlords gets sick of subsidizing renters.

Aren't you neglecting corporate-owned apartment complexes, aka the majority of places I've rented?
They still have owners, and they are rolled into the statistics. Interestingly apartment REIT stocks like MAA, ESS, and ELS seem to have missed out on the real estate boom, and are selling at about 2019 levels. This suggests they are coasting on the lower interest rates of the past until they have to refinance, while simultaneously facing both higher prices and interest rates as barriers to expansion. If there's not much to like about these stocks, there's not much to like about landlording.

I don't fully understand how to measure the performance of REIT's. However, I personally think it's weird that some REIT's are flat from 2019 to 2023 when so many landlords made money during the same time. I think this is evidence that buying REIT's and being a landlord are not the same thing. 

Michael in ABQ

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Re: Predictions are housing prices will drop; what about rents?
« Reply #60 on: January 22, 2024, 02:53:16 PM »
I just saw someone on Twitter recently post about losing their entire $100k investment in a large apartment complex in Austin, TX - a market that has been booming for many years. The investor made his money in software so was not an experienced real estate investor. But this was a syndication deal so it's possible the syndicator made enough in fees on the front end that they didn't care if they ultimately lost all their equity.

Basically it was a 4% cap rate deal and they projected 5%+ rent growth and stable interest rates with low vacancy of 5% or so. Instead the market for new apartments got overbuilt so there was no rent growth, vacancy increased to 10%+ and interest rates went up a few percent.

ChpBstrd

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Re: Predictions are housing prices will drop; what about rents?
« Reply #61 on: January 22, 2024, 03:04:03 PM »
https://www.usatoday.com/story/money/2024/01/19/renting-home-more-affordable/72274750007/
Quote
...its still more affordable to rent than own a home in nearly 90% of U.S. counties, according to a new report by ATTOM Data Solutions.
Quote
In nearly three-quarters of markets with populations of at least 1 million, the share of average local wages consumed by rent is at least 10 percentage points lower than the portion required for home ownership...

Every home has a "homeowner" whether they live in the home or rent it out. If the above statistics are true, it means most new landlords are buying an investment with long-term negative cash flows. Why would they do that? Perhaps demand for inflation hedges is a bit high after the experience of 2022, or perhaps demand for speculative growth with leverage justifies an investment which requires regular contributions of cash earned elsewhere.

What happens next depends on whether the national population of landlords gets sick of subsidizing renters.

Aren't you neglecting corporate-owned apartment complexes, aka the majority of places I've rented?
They still have owners, and they are rolled into the statistics. Interestingly apartment REIT stocks like MAA, ESS, and ELS seem to have missed out on the real estate boom, and are selling at about 2019 levels. This suggests they are coasting on the lower interest rates of the past until they have to refinance, while simultaneously facing both higher prices and interest rates as barriers to expansion. If there's not much to like about these stocks, there's not much to like about landlording.

I don't fully understand how to measure the performance of REIT's. However, I personally think it's weird that some REIT's are flat from 2019 to 2023 when so many landlords made money during the same time. I think this is evidence that buying REIT's and being a landlord are not the same thing.
Agreed. It also reflects the difference between having locked-in low mortgage rates as a small-time landlord taking advantage of federal loan subsidies versus having a book of bonds which must be refinanced every 3-5 years at the market rate. As a recent WSJ article noted, a low rate mortgage may be an asset that, if priced like a bond, is worth more than many homeowners' equity in their properties!

 

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