If prices go down in SD will rents go up?

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Submitted by sdsurfer on August 3, 2016 - 11:22am

I'm really curious. My logic is that if prices were to fall then rents will go up because more people will choose to rent while they attempt to time the bottom of the market. What does everyone else think? Thanks!

Submitted by FlyerInHi on August 3, 2016 - 11:51am.

I think during the real estate crash, people lost their homes to foreclosure, or walked away, so they had no choice but to rent.

During normal recessions, people lose their homes and their jobs and they have to move away, like happened in the 90s.

My bet is, next recession in SD, whenever that happens, home values will go down and rents will go down simultaneously.

Submitted by sdsurfer on August 3, 2016 - 1:13pm.

I feel like that did not happen with the last downturn though. Did rents go down during the last one or at any point around 2009-10? Did people leave?

Do you have data showing that people left in the 90's?

Thanks for chiming in!

Submitted by spdrun on August 3, 2016 - 1:27pm.

For what it was worth -- my friend was renting a one-bedroom in Carlsbad for $800 in mid-2009. Nice complex with pool, etc, though the window faced the railroad tracks and we'd get woken up by train horns at night.

Submitted by sdsurfer on August 3, 2016 - 1:36pm.

spdrun wrote:
For what it was worth -- my friend was renting a one-bedroom in Carlsbad for $800 in mid-2009. Nice complex with pool, etc, though the window faced the railroad tracks and we'd get woken up by train horns at night.

Spdrun - I feel like I've always appreciated your logic on things. Do you think rents will go down if prices fall along the coast in the next couple years? I'm looking for data, but your opinion means something to me based on what I've read from you over the years.

Submitted by The-Shoveler on August 3, 2016 - 2:29pm.

I think this applies here as well,

What you have to understand is the largest generation in history is just now coming into the household formation age and we are building like there was a declining population bust for the last 25 years..

I don't really see falling demand for at least 5 years anyway.

Just my opinion of course.

Submitted by sdsurfer on August 3, 2016 - 2:51pm.

The-Shoveler wrote:
I think this applies here as well,

What you have to understand is the largest generation in history is just now coming into the household formation age and we are building like there was a declining population bust for the last 25 years..

I don't really see falling demand for at least 5 years anyway.

Just my opinion of course.


I agree. Seems like good ol Econ 101.

Submitted by Rich Toscano on August 3, 2016 - 4:44pm.

sdsurfer wrote:
I'm really curious. My logic is that if prices were to fall then rents will go up because more people will choose to rent while they attempt to time the bottom of the market. What does everyone else think? Thanks!

I don't know, you are focusing on just one supply/demand factor among many. For instance, if the price decline is driven by a recession, that would also negatively impact rental demand and pricing power.

Rents were somewhat strong during the GFC because so many people were booted from their homes they had owned. But that was a pretty severe situation, with mass foreclosures... barring that, I don't think you can reliably predict rents going up in a housing downturn. Just my .02.

Submitted by sdsurfer on August 4, 2016 - 9:44am.

Rich Toscano wrote:
sdsurfer wrote:
I'm really curious. My logic is that if prices were to fall then rents will go up because more people will choose to rent while they attempt to time the bottom of the market. What does everyone else think? Thanks!

I don't know, you are focusing on just one supply/demand factor among many. For instance, if the price decline is driven by a recession, that would also negatively impact rental demand and pricing power.

Rents were somewhat strong during the GFC because so many people were booted from their homes they had owned. But that was a pretty severe situation, with mass foreclosures... barring that, I don't think you can reliably predict rents going up in a housing downturn. Just my .02.

Thanks Rich! I don't know either and would love some data that goes through multiple downturns because there are always multiple factors. I've been looking for the data without success so here I am working from theories. I guess I thought this might be an interesting topic for anyone that is interested in long term investing tied to Real Estate in SD. I'm trying to use actual data to learn from the past rather than predict anything here.

I absolutely agree that a decline driven by a recession would negatively impact rental demand/PP, but to what extent? I guess it depends on how bad it is, but people would have to stop coming here AND leave for the rents to go down...just my opinion of course.

Submitted by Rich Toscano on August 4, 2016 - 10:15am.

The BLS has a CPI rent series for San Diego, would that do it?

Submitted by sdsurfer on August 4, 2016 - 10:32am.

It might. I clicked the link you posted a few days ago, but could not find that. Thanks in advance Rich! I'm really just trying to make smart long term investment decisions for my family and to base those decisions on historical data rather than hunches, theories, etc. I like the control I gain with rental properties vs. other investments. I appreciate that I can take care of the properties/tenants and 10-20 years from now those properties can potentially take care of me and my family. That being said I do not want to be naive and make decisions based on my preference without using data to support.

Submitted by Rich Toscano on August 4, 2016 - 10:36am.

Start here: http://data.bls.gov/cgi-bin/dsrv?cu

Look for San Diego region, "rent of primary residence" category

Submitted by moneymaker on August 4, 2016 - 10:50am.

If those numbers are correct then rent went down slightly in the summer of '09 and recovered within a year and has not gone down since. Sounds like a good bet to me!

Submitted by Rich Toscano on August 4, 2016 - 11:35am.

I looked on FRED (great data collection site from the St Louis Fed) and they have it there:

https://fred.stlouisfed.org/series/CUUSA...

The YOY rate of change in rents has always fallen during recessions fwiw:

fred sd rents

Submitted by sdsurfer on August 4, 2016 - 3:05pm.

CPI-SD-84-2014: I went a bit further back (84 which is as far as I can go I believe) and it looks like there was a small dip 92-94ish. Does seem to be going pretty much up and to the right for the most part though.

Submitted by sdsurfer on August 4, 2016 - 3:28pm.

Thanks so much for this Rich! I believe that graph on FRED gives a lot of insight. Essentially...the rate of change year over year is does fluctuate a bit during a recession, BUT the only time it went negative since 84 seems to be a brief stint in 92-94 and it was zero more or less in 2010 breifly. Everything else seems to be positive although some years are more positive than others of course.

Is that what you see? Am I reading it correctly?

I'm not saying that it's always going to be gravy with investment properties, but I've always believed people put too much emphasis on the appreciation aspect vs. cash flow from rents going up over time in growing communities. If you are always cash flowing then you can simply sell when things are high if you choose to...or hold forever depending on ones intentions.

I really appreciate you helping me find the data man. Thank you very much and if I end up going the financial planning route at some point I'll definitely be going to PCA first.

Make it a great day!

Submitted by sdsurfer on August 4, 2016 - 3:32pm.

moneymaker wrote:
If those numbers are correct then rent went down slightly in the summer of '09 and recovered within a year and has not gone down since. Sounds like a good bet to me!

Fairly compelling evidence huh? I love data sometimes.

Submitted by Rich Toscano on August 4, 2016 - 4:29pm.

Yep, I read it the same way...

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