There was this article I saw on CNN/Money that said a very similar thing:
http://money.cnn.com/2008/01/16/real...ex.htm?cnn=yes
Based on my own personal observations in this market, the number of vacancies are soaring and the asking prices are either flat or dropping slightly. The unit next door to me in our building has been empty for four months now (I ain't complaining, it's nice having the whole upstairs to myself). I have never, EVER in my entire time living here (since 2002) seen a unit in this building go for more than a month without being filled. I know our property manager is asking too much for it, but she's dropped the asking price twice (first time by $50, second time by $100, still nobody in there).
I will concede that as the housing implosion continues and more and more people are forced into foreclosure, there will be increased demand on rental units due to that. However, I think that factor is going to be HUGELY overpowered by the enormous surpluses in rental inventories and the greater economic picture (in a recession, you take what you can get). Net result, I see prices flat for most people already renters (LL's who are stupid enough to raise rents will see their tenants say, "screw you" and go elsewhere - I know I would) and lower for new tenants, or given incentives, or both.
I wouldn't want to be a LL right now. You'd almost certainly be renting at a loss (and likely a fairly large one) per month with little end in sight.
A day will come when this changes, but it won't be until the purchase price of the underlying units have fallen 30%, 40% or more in some cases, to the point where rental revenues can cover carrying costs.
Mortgage meltdown: Now the rents
More fallout from the current housing slump - the cost of renting a home stagnated in 2007, according to an exclusive report for CNNMoney.
By Les Christie, CNNMoney.com staff writer
January 16 2008: 3:17 PM EST
NEW YORK (CNNMoney.com) -- Home prices dropped last year in most cities around the nation, and now rents are flattening out in many of the markets worst hit by the housing downturn.
According to data from Rentometer.com, supplied exclusively to CNNMoney, the median monthly rental bill for a sampling of 10 metro areas all around the United States rose just 0.5 percent in 2007 from $1,457 to $1,465.
Rentometer, which publishes rent-comparison statistics online, does not have historical rent data prior to 2007, but according to real estate consultant M/PF YieldStar, national rent increases had averaged between 2 and 3 percent annually the previous several years.
Home prices post record decline
"The major factors having an impact on housing prices are foreclosures, which make more rental property available," said Owen Johnson, president of Investment Instruments, parent company of Rentometer, "and also foreclosures that are not happening."
In the latter case, according to Johnson, many speculators bought properties to "flip," selling them quickly in a rapidly appreciating market. In some Sun-Belt areas, investors bought condos and other properties while they were still in development, to sell when a project finished.
Other investors bought existing single-family homes or other properties, intending to do cosmetic improvements and then sell them at a profit. But before they could do that, the slump hit, and home values dropped. Instead of selling at a loss, investors of all stripes are now renting them out.
Of the 10 areas sampled by Rentometer, Atlanta and Houston rents declined the most, plunging 12.8 percent for the year. Median monthly rent for all rentals in Atlanta is now $884, and in Houston it's $779.
The New York metro area had the highest median monthly rent in 2007, at $1,729, and it posted the biggest increase of 12.8 percent. San Francisco, where it grew 8.5 percent to $1,685, and Boston, where it rose 6.8 percent to $1,528, also had strong years.
San Francisco and New York are examples where Johnson said "massive demand" more than offset increased supply. These cities compete in a "global market," he said, and, by world standards, they're still relatively inexpensive for foreign currency-based consumers taking advantage of a weak dollar.
Other cities reporting big declines included Washington (11.8 percent), Miami (9.0 percent) and Phoenix (7.3 percent).
There are unique dynamics to the rental market, according to Johnson. Rents rise and fall independently of home prices. And there's often a push-pull to rental amounts: They're pushed up when foreclosures put homeowners back in the rental market but pulled back because the supply of rentals increases.
And, while national figures tend not to be too volatile, local markets can record large swings, as they did in 2007, when four of the 10 markets covered recorded double digit gains or losses.
Sometimes small events can leverage large changes, according to Johnson. "If MIT opens a new dormitory, for example, it can decrease rents substantially all over the Boston area," he said.
Pulling just a few hundred students out of the rental market in Cambridge (where the Massachusetts Institute of Technology is located) cascades down across many neighborhoods. Suddenly, there are a lot of empty apartments in the area, and renters from other places move in, increasing inventory in their old neighborhoods.
Foreclosure rates are a wild card as well. If foreclosures unleash so much supply on a local market that home prices plummet, that opens up affordable purchases for many renters. Cities enduring slumping economies, job losses and high foreclosure rates can also have very low barriers to home ownership.
In some Cleveland neighborhoods hit hard by foreclosures and an economic slump, there are homes for sale with terms of a mere $500 down payment and $350 a month. These are owner-financed, so there's not even any grueling loan-approval process. Buying a modest home there can be cheaper than renting.
As for 2008, Johnson predicts more of the same; the strong rental markets will stay strong and the weak ones weak.
"Foreclosures have not worked their way through the system yet," he said. Overall, that will mean both additional supply on the market but more renters as well, leading to a flat national market.