Renters feel the pressure. Shades of 1995!
I didn't need two articles, one from the October 26 Wall Street Journal, the other a summary of the October CoreLogic U.S. Housing and Mortgage Trends, to tell me that renters are hard-pressed these days. And while it's fall, the news has me remembering one of Silicon Valley's more notable (if metaphorical) spring-times: 1995.
All this comes from a "hot rental" I had several weeks ago that told me all I need to know about the market. Despite describing the home in Craigslist as "nothing fancy but with a certain rugged charm", I showed it to maybe twenty-five hot prospects over a four-day period, at the end of which it rented with fanfare and flourishes. Said prospects seemed willing to overlook certain "quirks"no washer/dryer hook-ups, no disposer, no dishwasher, no back yard, and very little in the way of upgrades since the home was built in 1904in exchange for a modest sum of rent that in Las Vegas could probably get you Wayne Newton's estate. I should mention that this time capsule of how simply your great great grandparents lived is nestled in a Palo Alto neighborhood of $2,000,000-plus homes called Professorville. This partly explains the unhealthy fascination.
Another piece of the explanation is that there isn't much out there for renters these days that isn't an over-priced apartment in a large complex owned and operated by a huge heartless institution. But mainly it's because the people streaming into this area these daysshades of 1995!aren't the kind of people who'll put up with living in your average rabbit warren, no matter how much granite, wi-fi and ersatz sophistication it offers. They're looking for a quality of life with more ιlan and character, even if it's a bit rough around the edges. No, these aren't your typical rentersshades of 1995! And if history repeats itself, many of the people I showed the rental to will buy in the near future. A few are actively considering it now.
Why? Perhaps CoreLogic's statement that "renters now spend five percent more of their household budgets on housing costs than do homeowners" answers that question, as does its contention that "the difference is growing as rents rise". I'm not sure that five percent number holds true in this area, where purchase prices have dipped from the stratospheric to the merely near-stratospheric, but the difference, especially at the affordable end of the range, is apparently a wake-up call to any but the most confirmed of renters. I just sold a condo located across the street from a large apartment complex, and my open houses attracted several renters from that complex who audibly wondered why they should pay almost as much in newly-raised rent as they would in mortgage payments and HOA dues. My sense is that the only thing keeping most of them from buying is the unrelentingly scary headlines.
But bad news always has a silver lining, at least for those with deep pockets, and these days it's that "strong growth of rents and occupancy levels of rental apartments have pushed some building values to record levels", according to the October 26 Wall Street Journal article "Apartment Values Rise, as Do Rents". "Apartment rents and occupancies continue to be boosted by demand from millions of people who are victims of foreclosure or are unwilling or unable to buy their own homes." As usual, the Silicon Valley story is a little different and a lot more cheerful: foreclosed homeowners, not so much; the unwilling, yes; but also lots and lots of the recently-arrived highly paid and highly educated who want to know they like it here before they spend a small fortune buying a home. Again, so 1995.
Of course, rents can't rise much higher because, as one of the anti-homebuying brigade's deepest thinkers postulates, "rents are limited by the money people earn." Except when the new folks in town earn more, which explains this quote from an executive of an apartment-owning Real Estate Investment Trust: "There's someone coming right behind them who can afford [higher rent]". Just like 1995.
If I appear unduly jazzed by skyrocketing rents and tight-to-non-existent rental inventory, it's only because they're a strong suggestion that better days lie ahead for all of local real estate, not just a handful of favorite neighborhoods. Okay, okay, it's also because they shoot down one of the renter-by-choice's more specious arguments for renting: it offers less risk than homeownership. Less risk? If I'm a renter not making the money these newcomers make, or if I'm an elderly renter on a fixed income, my housing situation looks a trifle precarious.