One other symptom of the low rates. Condo conversions. Not far from where I live there are several nicer apartment complexes that were converted and sold off. The condos went for 3 - 4 times the price per unit as apartments. One nearby city had almost half its rental stock depleted by these conversions.
The city I live in had a whole bunch of new apartments built to condo spec that I’m sure are waiting out the builder liability period before being converted (deed only as the construction is already done) and sold off.
There are some areas where I own property, like Phoenix, that have “investor ghettos” and it will take quite a while to absorb all the units.
Because of low rates and somewhat affordable housing, a landlord needs to offer lower rents to fill vacancies. I was thinking that as rates rise, the price of the monthly mortgage of new home pruchases goes up. Some buyers will be priced out of the market. The others don’t want to pay it. Therefore, this will make renting more attactive and may allow for rents to rise some.
Re: Will higher interest rates move local rent … - Posted by Frank Chin
Posted by Frank Chin on June 08, 2007 at 03:20:25:
Warren:
It’s basically the supply and demand of available housing units.
When interest rates fell too their historic lows a few years ago, I found:
Some folks selling their homes into the peak, looking to rent, who normally would not be renting, increasing the DEMAND.
Landlords who waited for the market to peak finally selling, decreasing the supply.
Housing prices zoomed, out of reach of many, despite lower rates, and this is another large group, those who decided to wait things out, again increasing the DEMAND.
When that happened, I didn’t have to lower the rents, because the demand has increased, supply decreased.
The were several SFH rentals in a town in LI, and I just rented out a SFH, the guy across the street ran over when he saw me as I came by to do some work. His landlord is selling the place, and there is NO HOUSE available for rent in that town, and he didn’t want his kids to change schools moving out of the district.
He noticed I hired landscapers and offered to do it for free, and offer more rent than what I was asking for. Unfortunately, he was a month too late, and I signed a lease with the new tenants. His lawn maintenace was impeccable.
Part of the problem is that the folks who were “quality tenant” have been depleted. It will take a period of higher affordability for housing to rebuild the tenant pool of those that are stable tenants. It is actually a competitive thing and competition for decent rentals has diminished due to the quality folks buying houses. Once they can no longer afford homeownership as a choice, then the rental market will slowly rebound.
However, prime mortgage interest rates aren’t all that much higher today than they were a year ago. The disappearance of the sub-prime market will and has eliminated a lot of potential buyers. My guess is that it could take another year or more for rental prices to rebound.