4 December 2003
Mr Greenspan, bring me a dream
Jay Solo, contemplating a choice of roofs over his head:
Is a crash or stall of real estate price pending soon? Are things as outrageous as I perceive them to be, or do I need to get a life (and a better income that changes my perceptions)? You think rentals will seriously go down? If they do so enough, that has implications for home sales. High rent makes a not much higher mortgage appealing. Low rent makes it another story.
I always recommend getting a life. Not that I ever follow my own advice or anything.
Rents, at least here in the Less-Than-Teeming Milieu, seem to trail housing prices by about nine months. Right now, homes in the relatively-affordable range out here, this means sixty to eighty thousand dollars or so are moving quickly, but the supply hasn't dried up yet because interest rates are still low enough to justify trading up. (Older homes at roughly twice this price point are going begging because the average new home costs about the same and theoretically requires less upkeep; really high-dollar houses, however, are selling well.) If interest rates rise substantially, a lot of people will choose to stay put, which leaves fewer properties on the market, which will force up prices even faster at the low end, creating a higher demand for rentals, which well, you get the idea.
One factor which affects rents is the de facto Federal subsidy for properties which lease to Section 8 tenants; many a landlord has gotten into the business by buying an apartment complex on the cheap. In Oklahoma City specifically, this has created a two-tier system, where apartments similar to the one I just departed (two bedrooms, c. 900 square feet) rent for $400 to $500 at places that take Section 8, or $700 to $900 at places that don't. (No points for asking "Is it worth three hundred a month to avoid poor people?")
I've gone on record as stating that interest rates are probably going to rise over the next couple of years, which notion led me to buy now instead of waiting until I could supposedly afford it. I did the math, and way more than half of the extra $400 a month I'd presumably have in 2005 would go straight to an increased house payment; a point or two in the interest rate and the expected 15-20 percent increase in housing prices would easily absorb a couple hundred dollars. Jay thinks there's a bubble about to burst, and in some places I'm sure there is, but where I live, at least, we don't seem to be headed for a fall: the local economy is growing slowly, but it is growing, and it's much more diversified than it was in the days of the early-80s oil bust. I fully expect someone to offer me a third again as much as I paid for this place by 2006. Not that I'll take him up on it, unless I win the lotto or something.