Markets have a funny way of evening out over time, wiggling up and down to eventually find some sort of equilibrium. One way this happens in real estate is when the tradeoff between renting and buying hits a sweet spot, e.g. when rental rates increase and property values decrease—at some point the scales get tipped one way or another.
Most people are familiar with the crazy real estate boom that started in the early 2000’s and crashed late 2007. But the new story that is playing out is the reverse, where home prices are falling and rental rates rising. This is the part of the economic cycle where properties sell at ridiculous discounts, institutions liquidate, flippers work their magic to rehab distressed inventory, and longer term investors note that they can now buy on the cheap and rent out for decent ROI.
Reis, Inc. reported recently that rents are rising, and vacancy rates falling (from 7.8% to 6%, the lowest since 2008)—these are the perfect ingredients for the buy and hold real estate investor! While a 2.4% rise in rental rates isn’t the end of the world for renters, it does make the case for buying property that much stronger.
A note of caution, however, is that rental rates are not going up everywhere. In my market, Manhattan Beach, CA, the median rent has been falling significantly, dropping 18.1% over the last year:
90266 Median Rent List Price
In one of my other recent posts on this subject matter, Rent Or Buying In The South Bay, I speculate that Manhattan Beach home prices are near an equivalency point with respect to renting, and that’s despite the 18.1% drop in median rents. It’s equivalence points like this that reverse trends.
Nonetheless, these are interesting times and there are plenty of opportunities out there.