Bubble pop in rentals too?

[Anonymous]

The condos are going to be competing against all of those class-A apartments that are going up. I would imagine that is going to be a buyer's market for a while. Job growth has slowed significantly, and I would assume the pool of new-to-DC renters is also starting to shrink. Since this is happening at exactly the same time that rental inventory is swelling thanks to all of those cranes the last few years, there is going to be some downward pressure on rents and upward pressure on vacancy rates.

http://www.washingtonpost.com/business/capitalbusiness/dc-area-job-market-is-gloomier-in-crucial-government-and-contracting-sectors/2014/04/18/c2cc9f44-c70d-11e3-bf7a-be01a9b69cf1_story.html

Anonymous wrote:I rented my beautiful condo for years in Ballston for at or above my mortgage no problem. This past year it sat empty unable to be rented for more than 6 months despite numerous decreases in rent to well below my mortgage. Finally put it on the market in February. Still empty. Been told several other units in my building that were regular rentals had the same problems. Don't know what's going on.

[Anonymous]

Commercial landlords are already seeing some problems.

http://m.bizjournals.com/washington/breaking_ground/2014/04/the-state-of-downtown-d-c-is-strong-with-a-huge.html?page=all&r=full

[Anonymous]

Where do people live then, if no one is buying or renting?

[Anonymous]

They live somewhere outside of the DC metro area. Jobs are why people come here. When you have a ton of apartments coming on line at the same time job growth dries up, rents will fall (or, equivalently, concessions go up).

Anonymous wrote:Where do people live then, if no one is buying or renting?

[Anonymous]

Anonymous wrote:Can you have a bubble in both the rental market and the housing market? I thought they were usually the inverse of one another. People have to live somewhere, don't they? Assuming they all aren't in shelters or their parents' basements.

Yes, you can. It's not instant that one flips on and the other flips off. Renters have been slowly leaving the market as interest rates made it attractive to buy. And so THOSE renters are gone, there will be new renters to replace them because the area is so transient, but people aren't idiots. They aren't going to pay more than what the market can bear and there are a ton of rentals coming on the market. The housing situation is slowing down because most buyers either bought or gave up and there's been less on the market that's desirable. Everything now is pretty picked over. Eventually if one stays in a slump the other will rebound a bit, but right now it does seem that both markets are stalled.

[Anonymous]

All we have heard in DC for more than a decade now is this are being redeveloped, that area being redeveloped. Every single week there is a new announcement of something being redeveloped and new apartments going up. It has to stop somewhere. After the housing crash, the pace of building apartments really picked up since people could no longer buy. And so we have building after building coming online every month. It's too much for the market to absorb. Especially when all of these units are top-dollar luxury rentals. And people like to say that this will just force the existing, older apartment buildings to become cheaper. Nope. Many of them are doing totally gut jobs and converting to luxury rentals themselves to stay competitive.

So there is that but I also agree with the OP that at some point, everyone and their brother holding onto homes and becoming landlords has got to stop at some point. There is just too much supply.

[Anonymous]

Anonymous wrote:

Anonymous wrote:If anything I think rental prices are too low. I have many neighbors who are renting for less than their mortgages

No that just indicates they overpaid. Rentals are getting harder to fill, every tom dick and harry aspire to be real estate tycoon with income producing assets.

Hint if rent is less than mortgage its not income producing. Instead everyone gambling on appreciation.

Also could indicate a shorter term mortgage, say 15 year. Negative delta between rent and mort. on one house doesn't, or even a few, is pretty insignificant.

[Anonymous]

gent.in.nwdc wrote:

Anonymous wrote:

Anonymous wrote:If anything I think rental prices are too low. I have many neighbors who are renting for less than their mortgages

No that just indicates they overpaid. Rentals are getting harder to fill, every tom dick and harry aspire to be real estate tycoon with income producing assets.

Hint if rent is less than mortgage its not income producing. Instead everyone gambling on appreciation.

This was the biggest sign of the bubble in California, which was hit hardest during the Crisis. San Diego buyers were paying a monthly premium of 40% over going rents for the privilege of owning during the height of the Crisis. I'm sure we are nowhere near that right now in the DMV, but this is the key metric to keep your eye on. If you're paying $3500 in PITI but can only get $2500 in rent, you're in a bubble and it will pop. Rent-to-PITI ratio is what matters.

No it wasn't 'the biggest sign'

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If anything I think rental prices are too low. I have many neighbors who are renting for less than their mortgages

No that just indicates they overpaid. Rentals are getting harder to fill, every tom dick and harry aspire to be real estate tycoon with income producing assets.

Hint if rent is less than mortgage its not income producing. Instead everyone gambling on appreciation.

Also could indicate a shorter term mortgage, say 15 year. Negative delta between rent and mort. on one house doesn't, or even a few, is pretty insignificant.

True but this is a theme for many people I know who rent out. They only lose a few hundred a month from the mortgage (let alone other expense) yet think it is a great long term investment.

It's like if you bought a dot.com stock with monthly dues!

Yes odd financing can make it harder to cover monthly nut, but pp was saying rent was too low so I assumed she was referring to standard case.

[Anonymous]

Anonymous wrote:All we have heard in DC for more than a decade now is this are being redeveloped, that area being redeveloped. Every single week there is a new announcement of something being redeveloped and new apartments going up. It has to stop somewhere. After the housing crash, the pace of building apartments really picked up since people could no longer buy. And so we have building after building coming online every month. It's too much for the market to absorb. Especially when all of these units are top-dollar luxury rentals. And people like to say that this will just force the existing, older apartment buildings to become cheaper. Nope. Many of them are doing totally gut jobs and converting to luxury rentals themselves to stay competitive.

So there is that but I also agree with the OP that at some point, everyone and their brother holding onto homes and becoming landlords has got to stop at some point. There is just too much supply.

This.

They have over developed with apartments and not considered putting up any viable long term housing options. I look at Ballston and Clarendon and really do wonder if the apartments were built because of excessive demand that really exists or just the belief that one day it could exist.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If anything I think rental prices are too low. I have many neighbors who are renting for less than their mortgages

No that just indicates they overpaid. Rentals are getting harder to fill, every tom dick and harry aspire to be real estate tycoon with income producing assets.

Hint if rent is less than mortgage its not income producing. Instead everyone gambling on appreciation.

Also could indicate a shorter term mortgage, say 15 year. Negative delta between rent and mort. on one house doesn't, or even a few, is pretty insignificant.

True but this is a theme for many people I know who rent out. They only lose a few hundred a month from the mortgage (let alone other expense) yet think it is a great long term investment.

It's like if you bought a dot.com stock with monthly dues!

Yes odd financing can make it harder to cover monthly nut, but pp was saying rent was too low so I assumed she was referring to standard case.

A 5, 10 or 15 year mortgage is not odd financing for an investment property - rather it is typical. Non-sophisticated RE investors approach investment property like 2nd homes and take 30 year amort loans - often bc of capital restriction as well as not understanding RE investing. Just FYI.

[Anonymous]

Anonymous wrote:

Anonymous wrote:All we have heard in DC for more than a decade now is this are being redeveloped, that area being redeveloped. Every single week there is a new announcement of something being redeveloped and new apartments going up. It has to stop somewhere. After the housing crash, the pace of building apartments really picked up since people could no longer buy. And so we have building after building coming online every month. It's too much for the market to absorb. Especially when all of these units are top-dollar luxury rentals. And people like to say that this will just force the existing, older apartment buildings to become cheaper. Nope. Many of them are doing totally gut jobs and converting to luxury rentals themselves to stay competitive.

So there is that but I also agree with the OP that at some point, everyone and their brother holding onto homes and becoming landlords has got to stop at some point. There is just too much supply.

This.

They have over developed with apartments and not considered putting up any viable long term housing options. I look at Ballston and Clarendon and really do wonder if the apartments were built because of excessive demand that really exists or just the belief that one day it could exist.

Well rents growth has stalled. So you'll see starts slow, esp on MF. But honestly, high density is the solution due to a number of issues with the DC MSA. Land prices, zoning, infrastructure, etc.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If anything I think rental prices are too low. I have many neighbors who are renting for less than their mortgages

No that just indicates they overpaid. Rentals are getting harder to fill, every tom dick and harry aspire to be real estate tycoon with income producing assets.

Hint if rent is less than mortgage its not income producing. Instead everyone gambling on appreciation.

Also could indicate a shorter term mortgage, say 15 year. Negative delta between rent and mort. on one house doesn't, or even a few, is pretty insignificant.

True but this is a theme for many people I know who rent out. They only lose a few hundred a month from the mortgage (let alone other expense) yet think it is a great long term investment.

It's like if you bought a dot.com stock with monthly dues!

Yes odd financing can make it harder to cover monthly nut, but pp was saying rent was too low so I assumed she was referring to standard case.

A 5, 10 or 15 year mortgage is not odd financing for an investment property - rather it is typical. Non-sophisticated RE investors approach investment property like 2nd homes and take 30 year amort loans - often bc of capital restriction as well as not understanding RE investing. Just FYI.

It's true that those types of loans are typically used in big time commercial real estate. But do small time landlords who might only own a few properties or a small apartment building also use a 10 year balloon loan? It seems like it would be tough for a small time investor to swing that. He definitely wouldn't be covering his monthly payment with the rent roll.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If anything I think rental prices are too low. I have many neighbors who are renting for less than their mortgages

No that just indicates they overpaid. Rentals are getting harder to fill, every tom dick and harry aspire to be real estate tycoon with income producing assets.

Hint if rent is less than mortgage its not income producing. Instead everyone gambling on appreciation.

Also could indicate a shorter term mortgage, say 15 year. Negative delta between rent and mort. on one house doesn't, or even a few, is pretty insignificant.

True but this is a theme for many people I know who rent out. They only lose a few hundred a month from the mortgage (let alone other expense) yet think it is a great long term investment.

It's like if you bought a dot.com stock with monthly dues!

Yes odd financing can make it harder to cover monthly nut, but pp was saying rent was too low so I assumed she was referring to standard case.

A 5, 10 or 15 year mortgage is not odd financing for an investment property - rather it is typical. Non-sophisticated RE investors approach investment property like 2nd homes and take 30 year amort loans - often bc of capital restriction as well as not understanding RE investing. Just FYI.

It's true that those types of loans are typically used in big time commercial real estate. But do small time landlords who might only own a few properties or a small apartment building also use a 10 year balloon loan? It seems like it would be tough for a small time investor to swing that. He definitely wouldn't be covering his monthly payment with the rent roll.

I would be curious to see why not preserving capital and carrying forward the ultra low interest rate for 15 yrs is advantageous to 30 years. Lower monthly cost, more interest to deduct, more leverage. Why do they chose 15 yr? Any way if a individual owner they should be able to cover their owner originate mortgage with rent. Otherwise why would anyone buy? If you depend in20 yrs of inflation to bring rent mortgage parity?