Monday, May 21, 2012

Tightening rental market will provide support for home prices

We received a great deal of criticism for the US housing market prediction at the beginning of the year. Given the shadow inventory overhang, the housing market continues to look fairly unattractive as an investment. But as the US population grows and owners coming out of foreclosure become renters, the rental market is tightening. Rental vacancies continuing to decline.

Proportion of the rental inventory which is vacant for rent  (source: U.S. Census Bureau/Bloomberg)

At some point this will translate into higher rent levels. We are seeing at least anecdotal evidence that this is already taking place in certain ares.
The San Diego Union-Tribune: - Rents are expected to rise and competition for apartments may stiffen in San Diego County as more folks defer owning a home amid what appears to be a slowly improving job market.

Rising demand from young workers — also known as Gen Y’ers — fewer new units and tighter standards for mortgages also have pushed people into the rental market.

The result is a jump in rental rates. In March, the average rent in the county was $1,361, up 2.6 percent from a year ago, says real estate data company MarketPointe.

San Francisco finished 2011 with the highest rental-rate increase, at 4.7 percent, based on a separate report from commercial real estate company Cassidy-Turley, which has an office in San Diego. Washington, D.C., placed 10th with a 2.4 percent increase. San Diego County was not among the Top 10.
That, combined with higher taxes, will encourage more renters to consider buying (as long as the Fannie Mae and Freddie Mac keep writing those mortgage checks), as the after-tax mortgage payments become materially lower than rent. A large part of the support for the housing market will therefore come from demographics and higher taxes.
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