Its rainin but there aint a cloud in the sky
Must of been a tear from your eye
Everythingll be okay
Funny, thought I felt a sweet summer breeze
Must of been you sighin so deep
Dont worry were gonna find a way
Im waitin, waitin on a sunny day
Gonna chase the clouds away
Waitin on a sunny day
Waitin’ on a Sunny Day — Bruce Springsteen
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Over the holidays, I had time to contemplate the content on the blog, and I realized we have not spent enough time and effort examining the rental market. Considering 40% or more of Irvine households are renters, it seems appropriate for the Irvine Housing Blog to pay more attention to what is going on in the rental market. Plus, much of our discussion on valuations and projections for the market bottom depend on rental rates, so it is important to know where rental rates are to gain a feel for where prices are in the marketplace.
Examining prices for rentals is fraught with the same problems as examining prices of for-sale properties with one exception: there are good deals in the rental market. I will generally profile those I consider good deals or those that are simultaneously offered for sale. Occasionally, I do find WTF rental asking prices from floplords trying to cover their payments. I will profile these too. I will not examine any rentals owned by the Irvine Company. If you want to see their offerings, I suggest you go to Rental-Living.com. Instead, I will focus on private rentals offered on the MLS and Craigslist. I do not know any of the landlords, and we are not going to accept money from landlords to feature their properties. My opinion of the quality of the rental and the deal it represents is based solely on the information from the internet, and it could be entirely incorrect.
With all our explanations and disclaimers in place, let’s examine a property offered for rent and for sale to see what it tells us about the market. Today’s seller can’t decide if they should rent or sell. They are waitin’ on a sunny day…
Asking Price: $568,000
Asking Rent: $2,350
Gross Rent Multiplier: 241
Rent Finance Value: $371,795
Income Requirement: $142,000
Downpayment Needed: $113,600
Purchase Price: $165,000
Purchase Date: 1988
Address: 11 Springflower, Irvine, CA 92614
Beds: 3
Baths: 2
Sq. Ft.: 1,144
$/Sq. Ft.: $497
Lot Size: –
Type: Condominium
Style: Contemporary
Year Built: 1986
Stories: One Level
Area: Woodbridge
County: Orange
MLS#: P585566
Status: Active
On Redfin: 188 days
Unsold in 90+ days
From Redfin, “single story detached condo house, 3BR, 2BA (3rd BR could be used as den or office), corner lot location, walking distance to sch, park, pool, lakes, shopping, newer carpet, baseboard, paint, scrapped ceiling, woodblind window coverings, show very clean and bright, move-in condition. No Mello-Roos, low tax rate”
Do you sense a lack of enthusiasm in the description? I don’t need three exclamation points, but that description reads like a medicine bottle.
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First, I would like to introduce a new concept: the rent finance value. Since the payment is the most important determinant of value, the rent finance value looks at the maximum value that could be financed with a 30-year fixed mortgage at todays interest rates (I used 6.5% above.) In today’s example, a payment of $2,350 would finance a payment on a loan of $371,795 at 6.5%. It is not as handy as the gross rent multiplier because you need either a financial calculator or a spreadsheet, but IMO it provides a good method for estimating value because it comes closest to simulating a buyer’s mentality without crunching too many numbers. As you may have noticed, it comes out pretty close to the 160 GRM value of $376,000.
So what can we observe with this property. IMO, this asking rent is near market for this unit. Further, this unit is what I would consider a “median” house product in Irvine: small 3/2s or large 2/2s. Obviously, the asking sales price is too high or it wouldn’t be languishing on the market for over 180 days. Gross rent multipliers were near 300 at the peak, and with our 20% drop, they are under 240 now. This unit confirms that GRMs are falling below 240. A knife catcher may pick this up for $525,000 and watch it drop another $150,000 in value over the next few years. If the property data I have is correct, there is no urgency for this seller to sell, but also no need to be stubborn about the asking price. They really have two options: rent this out and be the bagholder, or lower their price and let someone else be the bagholder. What do you think they will do?
I have to ask because it seems that in doing so you’ll be ignoring a large section of the market; why aren’t you including Irvine Company rentals in your potential posts?
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Kudos IR, this is going to be a nice addition to the blog posts.
I’d suggest tossing a link back to the post where you explain how you get the Gross Rent Multiplier (for all those new readers coming to visit) so people don;t have to think too much in the morning =)
Asking rent is probably a bit high – the $/sq. ft. is somewhat higher than all five of the nearby properties – and they haven’t rented yet either.
IC rentals would be an interesting addition, but they’re not directly comparable. For one thing, an IC rental isn’t going to get foreclosed from under you, which is becoming a significant concern for a private-home rental.
I don’t feel the need to profile these properties for a couple of reasons. First, they are already profiled on rental-living.com, and I have nothing to add to the IAC descriptions. More importantly, the IAC properties do not have many comparables in the for-sale market to estimate values. My primary interest in profiling rentals is to establish the market rental rates and trends to see their impact on fundamental valuations of for-sale products.
In a macro sense, the IAC is the elephant in the room. Their rental activities have a tremendous impact on rental rates in the area because they have so many units. I will mention IAC communities in posts where such comparisons are appropriate, but I don’t see a need at this point to profile their units.
IR, fair enough. You know the market much better than I ever will. And since you are at least open to including some of their properties in future discussions of other properties it would seem that ignoring, in the main, won’t skew the overall discussion, which was my only concern.
Thanks.
Oh and by the way IR, brilliant addition for 2008. I think any discussion that focuses on the fundamental influences of the market is one that is worth looking at.
Well done and thanks.
I agree based on 2 points:
1. I am scared as hell a private owner could foreclose in this market, that would be real hardship on top of real cost (what value do you put on this: maybe $3000 – $5000? at some probability)
2. You know the Irvine Company is going to give you back your security deposit. My experience with private landlords is not so good. Irvine company’s security deposit is typically half what a private owner would expect. In this case 1 months rent: $2350…. if you stay a year and lost the deposit, that’s an extra $200 per month in rent.
Great idea to profile some rentals – looking forward to some great new posts!!!
That is a cute house, but the price per square foot to buy is, to this
Floridian, unbelieveable.
I guess it’s not believeable to Californians either, because nobody’s buying it.
By the way, seems like if you are renting from a private landlord, might be a good thing to check THEIR credit. Have them show proof that the payment is up to date, and ask for copy of the mtg payment check every
month, after it is negotiated. Failure to pay is an event of default in favor of the renter. The renter has the option to pay the bank directly in the lease (works only if the rent covers the mtg). I suppose the renter could bargain to pay ahead a few months to bring the mtg current. And balance that against the number of months necessary to bring a foreclosure to conclusion there.
Wow, I must be the exception as a private landlord. My problem returning the security deposits was paying for DAMAGES first. Even though my tennants signed no pets one still brought dogs that pee’d all over my carpets, I had to sue in small claims court, I took pic’s and brought a rancid carpet sample for the judge to sniff.. I won of course and had to garnish her wages. Then there was the couple who got divorced, they had a fight and punched a hole in a door that had to be patched and he stopped paying and I had to evict her and go after his wages…
Oh and FYI lawyerliz, I avoid renting to lawyers, in OC they have no respect for debt, until you have a judgement against them they don’t feel they have to pay and they cause too much trouble asking documents. There’s no way I’m going to rent to someone if I have the hassle of proving I’m paying my mortgage!
I’m sure the comments will include plenty of IAC prices because it is important to the discussion. e.g. For $2,350 in an IAC unit, you’d give up the garage and a little privacy, but you’d gain a new home (not built in 1986), with great amenities, a responsive landlord, and some square footage (and the location would probably be better).
Orignally sold in ’88
How come no prior sales data available on redfin? Are they trying to hide something?
Also, the kitchen appliance don’t match, stove white, microwave silver, can’t tell color of diswasher.. looks silver. That’s what happens when you get the best deal you can on scratch&dent stuff.
Definately a WTF asking price.
Alan–usually the landlord is right.
I do evictions, and the stories I have heard are similar to yours. In fact, worse. Usually the landlords don’t bother to sue for damages because collection from the shiftless tenants is hopeless. I never had the judge do any carpet-sniffing but I’ve shown some pretty horrific pictures. In the appropriate case, I will do that–thanks for the idea.
I am assuming that the IHB blogsters are not like your typical renters, and are worried about defaulting landlords. And throwing out some creative possibilities.
Alan, funny you should mention it. I have a couple of friends back East who advised me never to rent to a lawyer…they got burned by one (tenant) who knew how to legally “game the system”, stopped paying rent and dragged out the eviction for almost a year. DOH !
Caveat: I’m sure plenty of other lay people know how to do the same thing.
Thanks for expanding the data from which you are analyzing.
However, I think your ideal on what may be fair rental value and what the ‘gross rental multiplier’ should be is harming what I think is an excellent analysis and obviously exhaustive research. Maybe Irvine “really is different”: maybe what the market will bear is a GRM of 185 or 193 or 152 or 145 or 117… What are the odds that a GRM of 160 is the magic number?
Anyway, it’s just my opinion. Showing that the rent multiplier is declining is an incredibly useful piece of data to track, though. Thanks!
I suggest that you use different GRM’s (Gross Rent Multipliers for the newbies) for different types of property. Apartment type properties will be definitely investor driven because no one will really think that they want to live there for long. Townhomes (i.e. no one above/below) will have a higher GRM because the rent vs. buy equation starts to look better because you expect to be there for longer. Single Family Homes will have the highest GRM because you expect to live there the longest (that is transaction costs…financing, commissions are spread out over more years). When I’ve gone through the rent vs. buy calculations, I always come up with a number for SF homes somewhat above 200, so 160 for a townhome sounds about right.
Also, the HOA’s for this property total to $225, so net rent is 2125, not 2350.
I just looked at Craiglist for rentals,…thanks for doing the work, that can’t be easy.
Mav – Shouldn’t be too big a worry if you just do a quickie look around. Talk to the neighbors — did the guy buy in 2004 – 2006? Recent divorce? How does the place look? Like they’ve kept it up? People in big trouble rarely put decent money into a rental property, so if it’s in good shape they probably are OK. Of course, you could run a check and see how much debt is against the place.
Nice to see this analysis. This is the type of analysis that I do before I buy a home. Unfortunately there seems to be a HUGE amount of SoCal people who would rather be a bagholder than somebody who is financially prudent. Suprized? No, not really, people here would rather brag about their prize than the prudence of obtaining the prize.
good luck
-bix
Mav – On your 2nd point, I think the IAC security deposit is far less than half (assuming solid credit). In my experience, they will go as low as a $200 deposit as long as you sign up for auto-debit of your monthly rent. That’s another big plus of IAC.
Alan,
Sometimes the landlord is justified, but I have had situations in the past where I left properties in excellent shape (i.e. maid service twice a month)…..private landlord pocketed large security deposits. You can try to drag it out in court, but my time is also money.
From my experience a private landlord is highly likely to pocket your security deposit…. there may be some honest landlords out there, but you need to take into account that hidden cost.
IR – great post. One question — do you really think this place can be considered “medan” at only 1150 sq ft? I have always thought that something more along the lines of 1,600 – 1,800 sq ft (attached or detached) would be median in Irvine. Is anyone aware of any data on the average sq foot of homes and condos in Irvine? That would be interesting to know.
I don’t know the exact number, but Irvine has a much higher percentage of smaller attached units and condos than most people realize. Woodbridge, where this unit is located, is 75% attached and 25% detached.
CK, yep, and the third point that I left out is some corporate landlords will give you a huge bonus for signing a lease.
The GRMs are a good way to determine value, but that $2350 rent payment is not necessarily the right basis.
There are additional cost to renting from a private landlord.
Analyzing rentals is a great idea/addition to the blog! I think it is particularly interesting for properties which are both for sale and for rent.
Another interesting statistic (not on today’s property) might be ‘total carrying cost – rental rate’ or ‘monthly loss’.
In my area, which is not Irvine, I recently found a condo that was purchased at $490K, had not sold in 90 days at $530K, and was placed on the rental market for $1650. Can you imagine? The carrying costs (mortgage, lost interest on downpayment, condo fees, taxes, insurance) were somewhere above $3,400/month. The owner was taking almost $20K in annual losses to hold onto a depreciating asset and manage the rental. And, as of Dec 27th, he hadn’t rented it at that rate.
So, for dual sell/rental comparisons purchased near the peak, it might be interesting to show the monthly loss on the rental as well. From a practical perspective, this number could also be seen as the ‘how long will this owner hold out before giving up on renting the property’ number. In today’s case, they might hold out renting a long time. However, losing $20K/year, its hard to imagine the owner holding out more than 1-2 years.
You are probably correct in your assessment. I am afraid it may confuse people to start using multiple numbers.
On these investor driven properties, I suspect GRMs will fall below 120. There are going to be a great many foreclosures in this category (who would struggle to stay in one?) For your “median” type property, GRMs of 160 will be near the bottom, and for more desirable properties, the GRMs may stay higher. I am still of the opinion that prices will drop down below these benchmarks due to the number of foreclosures being so large.
The concept of calculating the value of a property based on the GRM is new to me. I believe that the GRM of 160 may be too large………..time will tell but my suspicion is that the value of the property may be set by savings rates and not rental multipliers.
When you can get 100% financing converting from a renter to a homeowner(mortgage holder) is simple. However, when you start asking for a down payment, the equation is completely different. Time will tell what lending institutions will require from home buyers. I would not be surprised if we started to see 20 or even 30 percent down payments. In that case, the multiplier may dip to 100.
I can only hope I was part of your inspiration when I tried to post the two links a few weeks ago to MLS # S500710 which is for sale for $1.7M or for rent for $4,500 (MLS #S504925). This property is not in Irvine, but Tustin Ranch. When you consider the money necessary for a down payment and the lost of investment income, the idea of some greater fool buying this property at this price is staggering.
Boy, am I glad I did my time in the Navy. CalVet VA loan $0 down up to $521k, and 6.55% interest rate for 30 year fix. (Could be as low as 5.35%, but unfortunately we are over the income cap for that). My buy vs. rent equation will be easy. Since I pay $2,400 in rent, just wait for the place I want to drop to $525k and presto. I didn’t see it when I was going through it 18 years ago, but its good to see that getting all my hair shaved off in boot camp was worth something!
Yes, and those that wouldn’t be confused can always get the calculator out for themselves 😉
“They really have two options: rent this out and be the bagholder, or lower their price and let someone else be the bagholder. What do you think they will do?”
Well the question really is how much kool aid have the sellers had to drink? Has the market downturn acted as an anti-hangover pill – AKA sobering effect? Some obvious clues: Since these folks bought the home back in 1980s, there is a strong reason to suspect that they have enough equity and leverage to afford holding on to a WTF price. They have nothing to lose probably since the likelihood of going underwater is low unless there are some invisible HELOCs that we do not see. All in all the seller is likely to stick to the price and I doubt they might be bagholders based on some assumptions here.
If they bought in 88, I suspect that the purchase price was south of $180K, assuming they put 20% down and paying down their mortgage and no HELOC’s, they should have less than $100K in debt, making their estimated carrying costs mortgage, HOA dues and taxes about $1,300/month. Asuming they retired out of state or got a mobile home, they may be just saying Ah if we can get this WFT amount great but if not no big deal.. If I were them then I would just lower the rent to fill it, they would be nearly $1K/month postive now, best case senario if they got their asking rent which they haven’t. This place looks like it’s been empty for the last 6 months, just burning a hole in their pockets.
I was astonished that my 2 bedroom, $1600/mo apartment at Woodbridge Meadows only had a $400 down payment. Thats just 25%. I was expecting and prepared to put down the full $1600 (last month’s rent).
I did $200 deposit on a $2,400 lease. And mav is right, the pp landlords don’t often give $1000 off move in, etc. All things considered (especially the peace of mind that you won’t be foreclosed on), IAC is looking pretty attractive these days.
Pros and cons to both. In general, you can get far more house for the same rent from a private landlord. We got a 4-bedroom SFR for $2,400 in The Willows. Not the nicest place and kind of small for a 4-bed, but lots of room for the kid in the back yard, fruit trees and the wife planted a nice garden. Oh, the two car garage was great.
We fixed all the piddly problems ourself and the landlord never raised the rent and never bothered us. Let us paint the walls whatever color we wanted.
The landlord never did squat but, then, at $2,400 for a 4-bedroom SFR we really didn’t want to be on his “radar screen” anyway. We stayed over four years and got all our deposit back. Great experience if you want to pay cheap rent and be left alone.
I’ve had both good and bad experiences renting from private landlords.
Of course the longer you stay the less the security deposit matters.
I think your experience is fairly typical: the longer you stay the cheaper your rent is, private landlords for SFRs often freeze your rent or it increases below market rates.
This is one reason some people get locked into renting for life. Not necessarily a bad thing, but people who are currently paying 2002 rents have a high hurdle to overcome to either rent a new place or purchase a home.
IR:
Marvelous idea to do this. You are now on the way to tackle my last question on the slope (annual rent increase) of the rent line.
Thanks
George8
You bring up a point that is often overlooked when people start projecting to the future in calculating a breakeven rent vs. own calculation: private landlords often do not raise rent much. Stable renters that take care of a property are golden to a landlord, and they will resist raising rents on tenants like that in order to keep them. It is also one of the reasons I resist projecting future appreciation or rental rate increases in calculating a breakeven point. It needs to break even in year one.
“I would not be surprised if we started to see 20 or even 30 percent down payments.”
This sounds more like “wishing prices down” ignoring reasonable expectations for the economy and housing. I think it’s very similar to the majority of people prior to 2007 “wishing prices up” at double-digit annual increases.
Irvine Renter, that’s a good point.
I know some people who have been renting the same house since the mid 90s and are literally trapped in their property. (rent probably half market value) It would take major life changes for these people to move. Home debtors are not the only ones who spend outside their means.
The question I have though centers around the transient nature of Southern California. Because there are people constantly coming and leaving, does it matter that these people have frozen rental rates? I look at them in the same light as the people who purchased in the 1980s and now could never afford the home they live in at market rates. Neither the long time renter nor the long time owner are likely to leave, they and their properties essentially get removed from supply and demand.
I tend to agree with the Newport Surfer guy….. there is a different GRM for different types of properties based on desirability. There will always be transient cash flow into this area.
the owner of the property I rent has tried to jack me on the rent from time to time. you have to negotiate, remind them of the one-month commission they will pay to re-rent as well as the lost rent will it sits waiting for a new tenant. I would love to see a study of the actual leases, not what MLS posts as the lease rate. I make multiple six figures but paying a 3K rent is tough even at my bracket. This is Irvine we are talking about, not Newport Coast. Just ordinary folk trying to get quality educations for their children. The bedrock of the USA, God Bless America, etc. etc.
But once you get to the 3K a month rent level, you are really testing your finances. No writeoffs, that is $3,000 cash you need to cough up so you need at least 5K gross income.
To pay $2300 for this 1100 sq. ft cabin strikes me as bubbly. Let the layoffs/recession continue to pound OC for another year. I say there has been a significant bubble in the rents as well, that what people have come to accept as “market” is entirely financially untenable for the vast majority of Irvinites.
Question. Are banks providing loans with 5 or 10% down for these half a million plus condos? If they are are they perpetuating the madness that is leading to the insolvency of many financial instututions? If they are lending at less than 10% down and the market continues its trend downward aren’t the banks becoming more insolvent? I’m just a lurker and not familiar with finance, banking or real estate, besides buying two houses with a big down payment and 30 year fixed loans. Actually I always believed everyone financed that way until very recently. So are the loans being made with little down in a decling market?
Prop 13 is an anachronism. Though it may actually serve to keep prices down. Why is that? My thinking goes like this… Because the marginal buyer is forced to pay a higher load of taxes (including Mello Roos), than he otherwise would without Prop 13. Since the marginal buyer, not the homeowner, sets the market price of homes, I believe the overall effect is a moderation on home prices.
Intuitiveley, the concept of property tax seems flawed. Taxes, IMO, should be based on use and/or consumption. Financial assets are no taxed outside of gains. Why should the rules be different for real estate?
That’s the point I tried to make to IPOP.
Think of landlords as products and renters as buyers. Buyers can only afford so much pruduct and that generally is on the order of 28% of their income, 50% of incomes going to rent is not affordable or sustainable. All landlords do by pricing their product so high is to fail to rent it, leading to long vacancies. The place profiled here has been vacant for more than 6 months, burning a hole in the owner’s wallets. Given the mean houshold income for Irvine is about 100K, and I think this property was targeted to someone below the mean, I think this property should be leasable by someone making more like 60K, that would mean long term sustainable rent for this property would be more like $1,400-1,600/month. Long term, pricing above this level will lead to vacancies like what you have here.
Prop 13 made the bubble worse, not better. By taking effecively taking taxe payments out of buy equation, buyers bid the price up higher than they would have if taxes were higer and thus a greater factor in the monthly payment equation.
Alan, I see this place renting to 2 or 3 single young people making $50-$60K each.
or…. a young dual income family making about $100K
I don’t see a bubble in rents. $2300 a month is about 28% for a $100K household.
my point being that suppose you (foolishly IMHO) agree to rent this tiny place for $2300. With no writeoffs, and assuming you make enough to afford such a lease, you are at around a 40%+ combined state and fed income tax rate. so if you only get 60 cents on the dollar of your gross income, you need $3800 gross income for this baby every month. That is 12 X 3.8K = $46,000 in gross income to have that decidedly non-gourmet kitchen. If you are unfortunate enough to just pull down 100K (which even Shiny was guilty of for many years), you have the majority of your income going to rent and taxes with nothing left over for enjoying life. And enjoy I do, I love fine dining, wine, cigars, scotch, you name it, it all costs money. how can you enjoy life at these rates?
I don’t get it, maybe I am too old now so what people say is “market” just doesn’t make sense to me.
How does Prop 13 take taxes out of the equation?
shiny, LOL, remember when milk was 10 cents?
I think rent can only be a bubble when wages are a bubble. (tech boom in SF good example of this)
Did the jobs tied to RE ever rent? they bought houses (some multiple) that the banks have to deal with now….
Prop 13’s effect on prices is debatable. It is possible that older homeowners would be forced sellers in an environment where they were forced to pay taxes on a mark-to-market assessment, thus adding to the supply side of the housing market.
We do know that prop 13 resulted in the necessity for Mello Roos.
The biggest joke about Prop 13 is not that it effectively caps tax rates for long term owners, the joke is that the whole thing is nothing more than a thinly veiled wealth redistribution scheme. Under prop 13, all property tax revenue is collected into a state pool which is then redstributed back to the various districts based on apportionments created at the time prop 13 was written. For Orange County, which was largely rural at that time, this means we get virtually nothing back from our property tax dollars in terms of local spending. That last time I checked for every $1.00 spent in property taxes of OC residents, ~ $0.04 was spent in the county! SF on the other hand receives somewhere around $1.50 in funds for every $1.00 in property tax paid.
mav: jobs absolutely bubbled in OC. The number of wastrels I know that were in the real-estate field (agents, brokers, mortgage, title, etc) that pulled down huge incomes the last five years is legion. I know these people first hand. They are all uniformly suffering right now with no light at the end of the tunnel. So I say with substantial justification that OC has plenty of bubbly rents, incomes are taking a beating in this town.
I cannot fully express the indignity I have suffered at dinner parties and whatnot while the real estate folks crowed about their incomes, their cars, their vacations, their whoring, whatever. Those good times are now thankfully at an end. Goodbye boorish dinner parties dominated by income braggadocio! Goodbye Range Rover sports driven by high school dropouts! Good riddance real estate bubble, I will not miss you!
I see this place renting to 2 or 3 single young people making $50-$60K each.
Maybe more people are shacking up but I don’t the market for this place being for single young people. Married young people with kids maybe, single young people want to be closer to the beach, the action
That said, take a look at your target market, the distribution of household incomes in Irvine (your local city) and see how many potential “buyers” or renters there are who fit your “profile” and how many sellers or “units like this at this price” are avaliable. If the answer is that sellers outnumber buyers than there will be vacancies until the price goes down.
Already vacant > 6 months are current asking price and counting.
Enough said.
Again professor shiny does not know what he is talking about. Shiny forgets that we have a tiered, not flat, tax structure in the US. Much of the tax burden for someone at that $100K income level is going to be taxed at 15% and 25% on the Fed side. You are talking about the marginal tax rates at the top but they don’t pay that rate on all earned dollars. Their take home is based on AVERAGE tax rate. It’s much more than 60 cents on the dollar…
By way of example, if you take a couple filing jointly, with no deductions at all, with a combined income of $100K, their annual tax burden will be around $24K per year vs. the $40K that professor shiny suggests. They take the standard deduction, two exemptions, knocking their Fed taxable income down to $82K with total tax of $13K. State tax at that income level would be around $3400. Social security and medicare another $7600 per year.
That couple would take home approximately $6300 per month. A rent of $2300 would be 36% of their take home pay.
Some links for you shiny so you can educate yourself and post with some intelligence:
http://turbotax.intuit.com/tax-tools/
http://www.ftb.ca.gov/individuals/tax_table/index.asp
Alan: your scenario would make sense if this place was located in CDM, I know that because I used to do the sharing a bachelor pad scene. Good memories, believe me. Don’t get married too soon, sow your wild oats!
Irvine is hardly the place for young folks, it is just dull, dull, dull. Just what you expect for married life, marriage and Irvine and made for each other.
ipop: with my income comfortably north of 300K, I must be forgiven if I am unfamiliar with the tax rates of the unwashed. But the bottom line is that you are overly bullish on achievable rents. I know it is hard to believe that the bubble is over, but it is.
People making 142k a year would be happy living in a this place?
All of the properties IR hightlights on this blog are of course insanely overpriced but some of them are also nice. This place reminds me of all the dumpy rentals I lived in during college. This is an example of the type of property that I would think would only be purchased with the intent of renting it out and never as a owner occupied residence.
Maybe you shouldn’t post about things you are unfamiliar with then?
There is no rent bubble. Rents have gone up with inflation, i.e. around 20% or so since the housing boom began and vacancy rates are relatively low. A recession could change all that, but up until this point, that has not been the case…
“whatever you want to say about Newport, Corona del Mar, and Laguna, these gems have community as compared to Irvine. Been there and did that. but the rents be a bit too much there for 4 bedrooms (I could swing 3) for poor Shiny, thus I am exiled to Irvine. I am an economic refugee!”
It’s amazing that professor shiny making 3-large per year can’t even afford a 4-bedroom in his communities of choice… Is a 4th bedroom there an extra $10K per month?
Maybe you should lease a more pedestrian SUV or cut-back on the vino and stogies. Sad that such a highly compensated individual such as yourself needs to rent a mediocre house in a dated area of Irvine. You deserve more professor shiny!
But your taxes are based on purchase price, and certainly still “part of the equation”.
everybody loves a good “well-to-do” / highly educated pissing contest
I think rents are only bubbly if we have loss of jobs in other sectors, at some point doom and gloom effects everyone
I’m just speculating, but from what I have seen, most of the RE wages fed housing and not rents.
Regardless, prop 13 does provide incentive to “buy-now:”, as a means of locking in a taxable basis.
I have personally never seen a situation improved by higher taxes. I have frequently seen the opposite.
Both of you seem to be assuming that there is a surplus of families making 100K/yr plus willing to rent these mediocre condos availabe in the renter pool to keep these seller-landlords in the green.
If that’s the case, why 6 months vancant and counting?
The simple answer is that the pool of available renters is not that deep, thus my prediction that the sustainable renter income level for properties like this will be for families making 60-80K and long term sustainable asking rents will have to be $1,400-$1,600/month to be affordable to their target renter.
Tonye wherever you are — what are your thoughts on this subject?
I would call a dual income $100K family household in Irvine relatively poor……. but heck that’s just capitalism at work. Secretaries make $40K a year.
The IAC complex across Jeffrey from this location doesn’t seem to have a problem renting units out. They are mostly sold out and charge around a similar price per sf… Maybe that’s the problem. Why not rent IAC for around the same price and get the service and amenities?
That being said, I really have no idea or knowledge of what this place should or does rent for though. I try to keep my posts to the Irvine areas I know much better such as WI, NP, and NW. Unlike professor shiny, I try not to comment on things I am unfamiliar with…
ipop: again, you need to visit west park. The homes are large with large lots and conveniently located to the michelson/von karman office complex where I sit overlooking the bubble-created wasteland of “central park west.” although the one neighbor does have older vehicles, most of my neighbors do the OC lifestyle that demands a luxury SUV. Mine is just a bit more blinged than most.
“woodbury” on the other hand, depressed the hell out of me. The post-industrial condo complex that calls itself single family homes. And you postulated a 2900 dollar rent for just 1600 sq ft out in that output that should more rightfully be called Irvine-adjacent rather than Irvine.
Because, unlike you, I know what a burden making a 3K rent payment is like, I know that you are just spouting shit that made sense back in the bubble days.
the bottom line is that 2900 is a lot of rent unless you are making substantially more than i do, which I am informed by demographics is rather rare.
ipop: you have degraded this blog just like Truthy used to do to the Lansner blog. shame on you. oh, $2900 rent for 1600 sq ft in way-the-eff-out-there-but-jammed-together-like-sardines woodbury sound about right to me! cuz all you have to do is buy some Irvine stucco and you is rich! shut up with that line of crap.
Well people did wish for 25%+ price increases and they got it. So why isn’t it acceptable to assume we can wish for 25% price reductions?
Whenever I visit OC (thank god I don’t live there) I’m shocked at how many SUVs I see driving around. About 50% of the vehicles on the road must be SUVs with one person in each. I’m especially amused by the SUVs with the cheap polyester flags or the yellow ribbon magnets on them. (Not only are these decorated SUVs a contradiction on wheels, they lack conviction! Magnets!)
What is it with you OC people and your 9 mpg gas guzzling carbon belchers? Don’t you guys accept any responsibility for the world being in the crappy state it’s in? Do you have kids? Do you care about their futures?
Ah, professor, you think 12% of gross (your $3K rent compared to your $300K gross income) is a burden huh? My-oh-my, how can any of us even afford to live around here if 12% of gross on housing expense is difficult? My household doesn’t make nearly as much as professor shiny’s and yet I would have no problem swinging a $3K rent while still fully funding 401k and the kids college IRAs. Hum… How could that be possible professor?
This being a new year and me being full of goodwill to my fellow man, I am willing to offer you some free financial planning, budgeting, and tax advice. Someone with your vast earning power really does deserve a nice house in one of those beach communities you prefer so I’ll help you find the path there. I don’t know much about “bling” but I’m willing to help get those big income dollars working better for you. You can start with my class on AMT, which is surely a problem for you, and how best to minimize your exposure to it.
Maybe I should start professor shiny with a reading class:
From Zovall’s post:
“This buyer purchased the home as an investment property. Perhaps he leased it back to Lennar for a few months. Then he found a new tenant (MLS S397784) to rent it for $2900/month starting in May 2005. I don’t know how $2900/month would cover a $600k mortgage + taxes + HOA”
Now professor, I’m not our good man Zovall. The $2900 you have your panties in a bunch about comes from original blog post… Did ya miss that? I know, it was a longer entry and all those words, they get confusing sometime.
Maybe you should take Zovall to task and ask him to, what was it again, “SHOW ME THE LEASES”? Maybe you could sue him for posting false and fraudulent rent transactions?
Well, a 25% price reduction sounds like a very reasonable forecast at this point; but 30% downpayments would probably cause twice that price reduction.
In and amongst this highly entertaining urination festival a question bubbled up in my meager mind. Forgive me for intruding but…
One of you (I have a hard time keeping track, forgive me) seems to be saying that Irvine rents do track with fundamentals and are not excessively high given incomes and whatnot.
Fair enough.
What I’m wondering is how the ownership implosion is going to affect these rents. Certainly some more people are going to be looking to rent but it seems as though, one way or other, there could also be some new rental inventory coming online at some point in the future. Assuming this is a correct assessment, how stable are the current rent values? Is it reasonable that one might opine some fluctuations over the next few years as opposed the more stable trend we’ve seen in the recent past?
IPOP, I think some percieve you as somewhat bullish despite stating that your statement that the market will correct.
I like your posts but I think you should cut back on the koolaid(might be laced with something strong)
of everyone wants to live in Irvine.
just because shiny makes 300k, doesnt mean he should be paying more than 3k per month, which by the way would be a decent house in IRVINE. with out going into details of how much I make, I pay the same percentage of my Gross income as SHINY does, I understand what he is talking about, after taxes, cash going into rent without deductions, living expenses, inflation in most daily expenses, I barely have some money to save. if I were to adopt the OC lifestyle, I would probably be neck deep in debt, no savings. no can he afford to pay more for a morgage, yes. but for rent, it does not make sense.
people paid high rents to say they can afford Irvine or OC or whatever. I have seen it so many times. people were putting kids in private school while living in Irvine (reportedly with some of the best school).
now that easy money is gone, alot of high paying jobs are going poof, we will have to wait and see if OC has that many people making 100s of k per months.
I think OC is in for a rude awakening. 😯
But it’s not rented after 6 months so we don’t know what the market will bear, just what the owners are asking.
There are two possibilities, 1) it isn’t being marketed adequately, which isn’t true or IR wouldn’t have found it
or 2) asking rent is too high.
If it was my property, if I didn’t have any takers after 3 months I would have dropped the asking rent by $100 and if no takers after another month kept dropping the rent by at least $50/month until I had a renter.
These people can’t be too serious about renting if they kept the asking rent unchanged for the last six months.
I suspect we will see volatility in local rents over the next couple of years. There will be a steady stream of renters coming from the ranks of former homedebtors, but these people will probably end up in IAC properties because they will take people with good incomes and spotty credit. Private landlords tend to be more selective when they can.
It is the supply side that is going to be erratic. As REOs pile up and sit vacant, supply is squeezed, and when these get dumped onto the market, particularly at the low end, new rental supply will come in batches. Also, there will be floplords at all price points hoping to find a renter to fill a cashflow gap. These are the most unpredictable part of the supply side. There is no telling how many of these will come on line or how long they will last.
Personally, I would not rent in Woodbury, Northwood II, or Quail Hill from a private party because you know they are going to be upside-down on their monthly costs unless they put down a huge downpayment. The older Irvine neighborhoods offer opportunities to find good deals where the rent will cover the landlords costs making for a more stable renting situation.
Larger downpayments are going to become necessary because nobody is going to be willing to extend bridge financing for the other 20% required. Why would they? We have documented many, many cases of huge losses to these second mortgages. Anyone still making these loans into 2008 probably will not stay in business long. It is the increase in downpayment requirements that will deepen and drag out this bear market and delay any possible recovery.
ice w,
To date, I’ve only posted about what I think the rental market will bear today… With regards to future rents, I see things on both sides of the equation that could drive rents in either direction.
Rents up:
1. Increased demand from those unable (not enough down saved, higher mortgage rates, etc.) to buy given slow pace of correction.
2. Increase demand from those unwilling (why buy a depreciating asset?) to rent until we hit bottom.
3. Given that we appear to be heading toward a period of higher inflation (crude hit $100 today, gold something like a 28-year high), I expect we’ll see inflationary pressures on rents as well. IAC is sure to increase rents if their costs are going up assuming vacancy rates remain low…
Rents down:
1. Declining price of houses, assuming investors aren’t looking for significantly more ROI to offset greater risk, might drop rents some.
2. Pent-up supply from the foreclosure inventory once it’s finally turned. Vacant homes can only be vacant for so long. Have to be buyers or renters in them eventually.
3. Local or national recession with rising unemployment and poor wage growth.
I think rents really could go either way or stick right around what they are today. If I had to guess, I’d say rents in the short-term were going to head up as the upward pressures are more immediate and the downside pressures should take much longer to play out…
I’m guessing he would rather lose $20k/year rather than suffer a massive loss all at once if sold and had to pay the mortgages. It could also be just one more home in the inventory and the owner can eat those losses no problem.
I think there will still be a market for seconds. Especially the 10% kind, and to a lessor extent, 15%. It’ll be interesting to see what kind of risk premium gets booked into both the 1st and 2nd when 2nd financing is utilized.
It’ll also be interesting to see what kind of punishment PMI puts on the loan.
or they were fookin stoopid and cashed out with a HELOC to party, snort, drive, fly, cruise, whatever, and are fooked and need this wtf rent.
Sorry, that was unwilling to buy, not unwilling to rent.
And you can bet that ole professor shiny couldn’t or wouldn’t put that much thought into a response ice w. He’d just say “Irvine sucks”, “I pay $3K”, “show me the leases!”, and “I make $300K”…
shiny should have a little button so he automatically insert his catch posts without typing. He could interject one between every other sentence, kind of like realtors and their exclamation points after everything.
oh gawd I love my 0.6425% annual property tax rate and no state income tax!
Well said IPO regarding rents. While rents aren’t in a bubble. Rents have already seen substantial rental push. We could see further rent increases followed by substantial and extended softness similar to ’92 – ’98.
I get bored with this shit: you are all blowing smoke because very few of you are doing what I have been doing for years: bearing a 3K monthly rent. try it and you will see, it ain’t so easy. So my point stands that it is easy to postulate (based on your bubble-formed ideas of what is reasonable) to say oh, 1600 sq. ft., that should rent for $2900 per month.
it is another thing entirely to write those monthly checks with out any help from Uncle Sam.
300K in OC isn’t that much when your wife has unfortunate and expensive health issues, rent at 3K, taxes with no writeoffs, etc. So it irks me to see those who do not know what it is like to posit that some tiny place in BFE Woodbury should rent for $2900 /month. it will just be financial suicide unless you are making substantial money. and if you are making substantial money, why live in Foothill/Ladera Ranch by another name (Woodbury). you could be living comfortably with 2400 sq ft with a yard in a much better location (West park)
and the other thing you are missing is that OC has been a thriving economy because of this bubble. that bubble is imploding now bringing down many, many formerly-high incomes with it. the good times we have enjoyed have falsely raised your sensibilities about what is normal.
2900 a month for 1600 sq ft way in a condo-development-packed-like-sardines way past the 5 is not sustainable for OC. It is based on a bubble economy that is no more.
To be honest, I try to be upbeat in general, you know the “secret” bullshit about thinking positive thoughts to get positive results, etc. But this bubble went on for way too long. The painful hangover of our debt binge will malinger for years. But, hey, think happy thoughts, money isn’t everything.
“go and live in Corona del Mar, Newport, or Laguna. Setting aside their considerable physical charms over Irvine, they are real communities. there is a charm to Corona del Mar that you cannot create in a corporate boardroom of the Irvine Co. it is alive, I love that place. But i am stuck in hellish Irvine (divorce can do that to you).”
Thought you were divorced shiny? Contradictions in your posts aside, places rent for what they rent for, not what you think they should rent for…
Many people, myself included, think that Woodbury is a better location than Westpark. All other things being equal, I’d personally pay a little more to rent or buy there. $3K sounds about right for a 4/2.5 in WP. For that same kind of place in Woodbury, if there was something like that, I’d pay an extra couple of hundred per month. That’d be especially true if it had granite counters, recessed lighting, and a gourmet kitchen… extracting tongue out of cheek now.
Jack: in general, I would not feel safe driving a thrifty vehicle like a Corolla with my children. Physics favors the heavier vehicle in impacts. My luxury SUV is one of the heavier ones (slightly heavier than a Suburban because of all its offroad features). Yes, the carbon emissions are bad (14 mpg combined city and freeway) but i live 2 miles from work: gotta love West Park in that regard. It is the 909 crowd who drive ungodly hours and miles to work in OC that are churning out the CO2.
Shut down the 91 and we will have an ice age.
ipop: I have a new wife, thus no contradiction. the old wife got her 18 years of blood/support out of me, about bled me to death.
Shiny, I got such a good laugh from your spot-on insight that Irvine and marriage were made for each other that I ignored your repeated derogatory remarks towards Woodbury. As a resident of this community I think that your view is off-base. Westpark is great but in Woodbury we walk to everything, not only the pools, parks and ball diamonds but also to all of the services and restaurants of the Woodbury Town Center. The icing on the cake for families is the brand new elementary campus right in the center of the community. If you have school age children one walk through the huge library and modern classrooms would have an impact. Woodbury is absolutely made for families with elementary school children.
For the record, I am closer in agreement with you on your comment that a $3,000 rent payment is painful even with an income over 200k. It is definitely not cheap to live here, but better a $3,000k rent payment then a $800,000 mortgage plus property taxes, HOA and Mello Roos.
how could 4 bedrooms and 2.5 baths possibly be squeezed into 1600 sq. ft? that is ridiculous.
With people like professor shiny clamoring about how all the jobs in OC have gone away, I thought I’d share a nice summary of our employment market:
http://www.calmis.ca.gov/file/lfmonth/oran$PDS.pdf
Amazingly enough, year-over-year from November 2006 to November 2007, OC had a net loss of 2,200 jobs out of over 1.53M positions. A whopping .1 percent decline. You think that is enough to change rents materially shiny? Government and healthcare has been growing and both are essentially undisturbed by the problems in real estate. Those people rent also. Many construction and mortgage losses are already in this data.
OC has a large and diverse economy. Employment has barely been affected by the real estate slowdown and credit crunch to this point. Not because they aren’t a big deal, but because few of the counties biggest employers in OC are in those industries. First American is probably the only significant employer related to residential real estate and they are diversified into insurance, etc.
oh, so OC is different…
Lets see, according to your pdf state and local government added 4,000 jobs in 07 and account for about 10% of all jobs.
That’s interesting, I thought I heard that the gobernator just declared a fiscal emergency, silly little 14 billion defict, I wonder what effect that will have on government jobs…
Hmmmm…..
I don’t know, what do you think IPOP
Construction accounts for 100,000 jobs (about 7%). Layoff’s just starting there, at least 20% of those jobs will go poof!
Not to mention financial and real estate.
Maybe IPOP can apply for one of those CA stem cell research grants, get a couple hundred mil and start a new institue to replace looming losses in construction, government and real estate.
No idea. I am talking about the effects of the current real estate recession on the job market in OC. People like shiny have made claims that so many jobs have gone away in OC. This data refutes that. The future is a different story…
Any regional, national, or even international issues will obviously have an effect on our economy as they always do. If we have recession, for whatever reasons, unemployment is going to rise everywhere, not just in OC… People will be out of work, probably even more so, in manufacturing-oriented/dominated regions.
I’d understood previously that GRMs in Southern Cal have historically been in the 120-140 range (while in the country as a whole, in the 80-120 range). I’m pretty sure I’ve seen these figures in investment forums, but I can’t recall when or where.
So, IR, where does your 160 GRM figure come from? Is this data available somewhere, for Irvine, Southern Cal, nationwide, etc?
Are you talking about layoffs related to residential real estate? Where do you see construction on residential real estate occurring in OC at any great rate? I see plenty of commercial building going on, but the slowdown on the residential side appears to have already taken place. This is labor data, it doesn’t lag much as people file for unemployment pretty quickly when they lose their jobs.
Using only Irvine as an example, building at the Village of Columbus slowed to a snails pace months ago. Orchard Hills and Laguna Crossing postponed before they even ramped up. Nothing new in Woodbury or Portola Springs for eons. Builders can’t sell the inventory they have so they’ve delayed, deleted, whatever. Where are those 20K construction workers working right now?
Now, if the overall economy were to start dragging, with vacancy rates in office space going up, retail getting hammered, etc. the commerical side will flounder and I could see your 20K jobs gone easy. Again, I see that as something separate. We can have a residential real estate correction/recession without the overall economy going south. It’s just a matter of if that will occur…
If I may chime in at this late time…
3k rent with 300k income, that’s 12% of gross. Not bad. You could be a saver with that ratio. My current ratio, simply because I’m a cheap bastard, is 9.95% of gross income. Me personally, I like to keep it below 10%, and always have. We (wife and I) used to be below 7% when we rented one of the rooms out. But in 2006 we were stricken with a case of blessed babyosis, so the roomie was out and our ratio increased.
Years ago when I was earning 11.50/hour, living in LA, I still had my rent at 10%. And, I was able to save quite a bit!
The traditional 28% is survivable, and I’m sure fine for many people, but I would never go for it unless I absolutely had to. I love to save and invest as much as possible. One could be a saver at 28%, but not particularly much.
Now 50%, that’s a whole other can of wax beans. That’s from either no other choice, or pure stupidity. You’ll go broke for sure at that rate.
How exactly does being a Navy veteran benefit you here? It’s not like they’re giving you anything. The interest rate isn’t unusual. A zero-down loan isn’t necessarily any better for you than putting money down because you’ll have a proportionally larger monthly payment and PMI* on top of it.
Of course if you don’t have the down payment, and can’t get a no-down loan on the market, and can swing the higher monthly payment; then OK, they’re helping… a little. Actually not very much. Just being a lender of last resort. (I didn’t realize the Navy was a bank…)
Now if they were granting you the 20% down that would be something. Or pay your PMI at the least.
*Private Mortgage Insurance, most lenders require it when your equity is less than 20%
Some interesting info on 2007 condo leases in my neck of the woods (source is MLS, yes I know shiny MLS is a pack of lies and you want to see the leases – save your post):
Address Beds Baths SqFt LeasePrice Tract
8 Morningdale 2 2.5 1200 $2,050 Andover
8 New Market 2 2.5 1200 $2,050 Andover
12 Sagamore 3 2.5 1500 $2,350 Andover
7 Emory 3 2.5 1500 $2,350 Andover
12 Weathersfield 3 2.5 1500 $2,350 Andover
14 Morningdale 3 2.5 1400 $2,400 Andover
20 Morningdale 3 2.5 1500 $2,500 Andover
51 Ardmore 2 2 1277 $2,150 Sheridan Place
44 Ardmore 2 2 1277 $2,150 Sheridan Place
9 Ardmore 3 2.5 1569 $2,200 Sheridan Place
35 Ardmore 3 2.5 1600 $2,300 Sheridan Place
9 Ardmore 3 2.5 1569 $2,495 Sheridan Place
7 Bellevue 3 3 1638 $2,600 Sheridan Place
20 Ardmore 3 3 1700 $2,695 Sheridan Place
7 Bellevue 3 3 1638 $2,700 Sheridan Place
86 Topaz 3 2.5 1550 $2,400 Mandeville
86 Topaz 3 2.5 1560 $2,400 Mandeville
57 Sapphire 3 2.5 1500 $2,500 Mandeville
26 Moonstone 4 3 2000 $2,600 Mandeville
121 Sapphire 4 2.75 2000 $2,750 Mandeville
26 Moonstone 4 3 2000 $2,800 Mandeville
74 Sorenson 3 2.5 1450 $2,750 Wisteria
53 Avondale 3 2.5 1622 $2,750 Wisteria
54 Congress 3 2.5 1622 $2,950 Wisteria
74 Sorenson 3 2.5 1500 $3,000 Wisteria
56 Autumn 3 3 1858 $2,800 Summerplace
51 Waterman 3 3 1905 $2,995 Summerplace
Works out to $1.60 per sf for these mostly attached condos/townhomes with an average size of around 1600sf. Average per sf rental price across the same housing tracks in 2006 was $1.54 per sf. That 3.9% increase tracks pretty closely with inflation as measured by CPI for the period.
I have the 2006 and 2007 sales data for the same tracks as well and the average sales price only slight declined, from $642K to $632K. The median sales price was around the same, at $610K. Both of those mask a big drop in per sf prices though. They fell almost 10% from $424 to $383.
ex-Tangelo: VA (Veterans Administration since you sound like you have no clue) loan = 0 down, and no PMI as the VA guarantees the loan for you. And if I’m not mistaken, a jumbo loan (>$417k) in the market right now is around 7+% — (forgive me if I am not current as I am not tracking bank rates) — so 5.35% or 6.55% would represent a pretty nice monthly savings.
http://www.cdva.ca.gov/CalVetLoans/BestLoan.aspx
The point of my post was that if nobody else can land a loan because of a lack of down payment (as suggested will be the case if you read the other comments), then I will be in a nice position to get a loan ever though I have nothing down. Like many other 1st time buyers, I don’t have $150k under my mattress so, yeah — I think I am getting something. But hey, your attempt to shit all over what I feel is a nice benefit of my service is greatly appreciated!
Great collection of data. But please be careful with your terminology — median and average aren’t the same thing. For talking it’s usually no problem to interchange them, but if you’re going to hang your hat on some piece of data like a 3.9% change of something, the difference between median and average can be pretty large.
For example, from your data:
The median $/s.f. is $1.59, the average is $1.61.
The median $/BR is $833.33, the average is $866.64.
Yeah, I do have no clue about the VA. I’ll admit to that. I wasn’t posting to make you feel bad. Please accept this apology.
Not paying PMI *is* a good deal, I did mention that. And you are offered a .2% discount over the average jumbo loan.
I am jumping in very late as usual (tend to read the blog at night vs. the day time when I actually work :)).
Shiny, sorry to hear that your wife has health problems. If you didn’t have that expense, I am sure you will find $3000 a month easy. If not, you are wasting your money else where.
My rent is $1900 a month for a 1000+sq ft IAC 2b/2b and my wife and I make above $200K a year together. This rent is not challenging for either of us and we have never had to think about it at all. Maybe we were both raised to spend our money wisely but we are able to max out 401Ks and set aside close to $50K a year in savings. And don’t think for 1 minute that we live on ramen noodles. I don’t waste money but I definitely enjoy life. My biggest non-essential expense per year is travel and I go all over the world.
ex-Tan, I didn’t use the terms median or average with regards to rental rates. I focused exclusively on average per square foot prices with regards to rents as they are the only metric I’ve ever encountered in terms of rents. Never even heard of a “median” rent rate…
I only used these terms in the context of home sales and I can assure you they were calculated correctly. I haven’t forgotten everything from my Stats class yet.
“the effects of the current real estate recession”
A direct effect of the real estate recession is lowered property tax collections. These two are linked, the effects on government jobs hasn’t shown up yet. Just because it hasn’t shown up yet doesn’t mean we shouldn’t be talking about it.
See http://www.nytimes.com/2007/10/18/us/18taxes.html
Comercial realestate is in the dumps too, vacancy rates are just starting to climb.
An associate of mine told me a story just last week. He is a partner in a class B-C office building in Newport. A civil engineering firm had rented the 2nd floor for the last 13 years. Now they were having a hard time. Lease was due. His partner was screwing around with them on the lease so they moved to smaller digs at less money. Now his space is vacant and a broker tell him to cut his rent to $2.15/sq ft, less than the engineers were paying to get it rented. Now he wants to kill his partner for screwing around with a long term stable tennent (they are already suing each other so the lawyers will make out ok).
This senario will play out all over O.C. Vacancy’s are up, comercial construction will slow down too.
You’re right about vacancy rights starting to climb. It’s hasn’t slowed construction down yet, but will have to once the projects underway get completed…
These particular economists disagree with you though with regards to how slow commercial will get:
http://lansner.freedomblogging.com/2007/12/13/office-vacancies-to-keep-rents-down-in-08-lusk-center-forecasts/
Saw this article – wonderful distortion of sales prices.
http://online.wsj.com/article/SB119803038237438417.html?mod=Leader-US
“How Hidden Incentives Distort Home Prices”
Just shows you can’t trust anything.
It’s not surprising to me. Not too long ago, I was at a home builder’s office on official business and the owner was talking to a potential buyer and talking about the real price versus what was gonna go on the deed and the rest was going to go the buyer as a ‘rebate.’ It was close to a 10% difference.
I don’t know how that will affect all the prognositcation and whatnot here, but you have to be a little bit skeptical.