I’ve received some questions about a chart Calculated Risk recently posted demonstrating that Miami is nearly back to 1999 price to rent ratios. Reproduced here:
Convincing evidence that we are reaching a bottom? Think again.
Here is the BLS rent index used to make to make the aforementioned chart:
This graph is laughable! Anyone involved in the Miami-Ft. Lauderdale rental market, whether it be a tenant or landlord, knows that rental prices are plummeting (and they most certainly are not rising). Here’s a tip: drive around Miami at 9 pm and look into the scores of shiny, new, and completely dark towers - that’s called oversupply.
The BLS wrong? No surprise there. Anyone with a brain long ago realized that BLS stats are practically propaganda (remember when gas prices went up like 25% in June or July and the BLS said energy costs decreased 3%?).
If that isn’t enough evidence, here’s a normalized chart comparing BLS income in the region to BLS rents:
As you can see, rent is climbing 33% faster than incomes from the end of 2001 to beginning of 2008 (sorry, but BLS only provided regional income data for those years) . This is ridiculous! Rent cannot climb faster than income, just as home prices can’t climb faster than income. Or have you already forgotten the housing bubble that just collapsed for that very same reason?
Either rent prices are at temporarily elevated levels due to the overall credit bubble and they are about to collapse OR the stats are just plain wrong. Either way, I’d reconsider the belief that Miami prices have nearly returned to historic levels. We still have quite a ways to go with rents and home prices.
can you tell me what the initials in the indicator BLS stand for?
Bureau of Labor Statistics (Ministry of Truth)
… B L S ….
… Bull…
… Lies…
and Spin… By permanent Government Agency Bureaucracy!
Look they played the Wizard of Oz on the public, all of them for ten years. The average person is an idiot and will believe anything put in their face - that is why 9 out of 10 of them are underwater. Rents and housing have to fall and fall a hell of a lot more to be realistic. They will do anything to brainwash people to do what they shouldn’t be doing right now - buying anything.
Im not sure..they say 33% of the foreclosures in CA were “illegals”..now that would foot the bill. I live in AZ and the same is probably true here too from what I saw. the winter population here is about half (or less) of what its been in past years. canadians are on a housing purchase spree here and theyre really low balling.
I agree 100% with your assessment of your market. The same can be said about Key West’s rental markets.
http://rocktrueblood.blogspot.com/2009/01/key-west-rents-drop-along-with-housing.html
Also, consider that so much of the housing stock is sitting empty due to foreclosure/inability to sell. When this inventory eventually hits the rental market(some % of it) you will probably see even further downward pressure on rents.
Dont pay attention to statistics provided by untrustworthy sources. We should only use basic business criteria for investing in real estate: if you can make money out of the investment, either renting or in equity growth. As equity growth is a mistery in these days, the rental equation makes more sense as a criteria. After a 20% down, the monthly mortage payment PLUS property taxes, insurance, maintenance and HOA should not exceed competitive rental values. If a property doesnt meet this criteria, renting is a better deal. You can always invest elsewhere where the prices were never so bloated and there is not such an excess inventory as in Miami (NC).
There are so many things wrong with what you said. What about the opportunity cost of losing 5% interest on your 20%? Equity growth in homes? Homes are consumption. Maybe I should talk about equity growth in the BMW I just leased!
Normally true, but It’s tough to get 5% return these days without gambling…Let me know if you have a way!
wait a few months. Interest rates will skyrocket…
3% in a 1 year jumbo CD.
3.44% in a 5 year jumbo CD.
Both FDIC insured.
Yeah, I got 3.4% 6 months ago. Now the most I’ll get is 3%.
Do you see the massive deficits we’re accumulating and tighter credit being able to push up interest rates?
If that happens, and inflation doesn’t set in as credit is still being destroyed, it will be great for savers.
I am being empted right now to buy a condo at 60%+ discount, paying cash it’ll be cheaper than the rent I’m paying, but I keep reminding myself that that’s only true UNLESS interest rates for CDs go up and the value continues to fall.
Thank you for a great blog, BTW
Oh yeah, if buy into the deflation thing then your real interest rate is like 6% (with negative 3% you CPI), and your real interest rate on a mortgage is >8% (with a >5% mortgage)
There is always a risk involved in every transaction, but when you buy at the bottom, there is more opportunity you earn equity. You cant compare a car purchase with a BMW, unless you bought a bloated Miami Condo! LOL
Your down payment is the intitial investment-risk that would allow you to earn equity, if you purchased at the right price. But any way, after the property is paid off, you would be making money out of it in rent even if it didnt accumulated a high equity. Main problem now is that most people are losing money by renting, as rents are cheaper that mortages plus taxes and insurance and HOA.
AT LEAST you should be sure you break even, or better, dont you think…?
The bottom will be reached when you can rent out your property in less than a month for your asking rent and the rent covers 100% of the mortgage, the HOA, taxes, individual unit maintenance, an allowance for vacancy and damage caused by the renter, and any other cost and you earn 5 to 10%.
YOU CANNOT BUILD EQUITY. What you are referring to is INFLATION. If you buy a house with 20% down and a shitload of inflation occurs then as a result you “earn equity” I guess that’s great, but that ISN’T going to happen. First of all, you can’t buy a Miami condo without at least 40-50% down.
Government figures? Are you kidding? That’s like posting massive lies 100% of the time. Joseph Goebbels wouldn’t even use this information.
But good for a chuckle or two. Hahahaha
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Thursday, February 26, 2009
What If Rents Cliff Dive?
by CalculatedRisk on 2/26/2009 04:22:00 PM
Yesterday I posted two graphs based on the Capital Assistance Program house price scenarios. The first graph was the change in nominal house prices, and the second was a house price-to-rent ratio (assuming rents are flat for the next two years).
But what if rents decline?
Here is a story from the Guardian in the UK: Steep fall in rents as unsold homes flood the market
A glut of unsold properties hitting the lettings market since the beginning of the year has pushed rents down by as much as 25% across Britain.
…
Average rents dropped to £795 a month in February compared to £950 in May last year, a fall of 16.3%, according to property search engine Globrix …
It estimates that the number of new properties for let has jumped by 88% over the past year, with the biggest increase occurring since the start of 2009.
… FindaProperty said that the number of rental properties advertised on its site almost doubled between September 2008 and February 2009 … average rental prices fell from £872 a month last year to £830 in February this year, and that landlords are offering lures such as free satellite TV and free weekly cleaner in a desperate attempt to secure new tenants.
Rents are declining in the U.S. too, although this hasn’t shown up in the BLS’ Owners Equivalent Rent.
Here is a graph that shows the price-to-rent ratio under three rent scenarios (using the “more severe” economic scenario). House prices are based on the Composite 10 index (used by Treasury) and are assumed to decline 22% in 2009 and 7% in 2010 under the “more severe” scenario.
Price-to-Rent Click on graph for larger image in new window.
This shows three scenarios for rents in the U.S. over the next two years: Flat, a 10% decline in rents, and a 25% decline in rents.
As I noted yesterday, with the “more severe” scenario and flat rents, the price-to-rent ratio will be slightly below the normal range. If rents fall 10%, this metric would be in the normal range, and with a 25% decline in rents house prices would be too high.
With the largest bubble in history, I’d expect house prices to overshoot and the price-to-rent ratio to decline to the bottom of the normal range. This suggests even a 10% decline in rents would make the “more severe” scenario too mild.
Posted by CalculatedRisk on 2/26/2009 04:22:00 PM
Yup, I saw that post. I beat him by 1 day….
In Key West the situation is a little skewed by the large number of part-time owners in relation to the total available units. For example in the 2000 census around 40% of our housing stock was vacant (at the time the actual count was performed) as it was owned by out of towners.
This does two things. It drives up rents by lessening availability. It also decreases the utility of the median income statistic because these people (retirees) have lots of hidden income that doesn’t show up, like insurance payouts and pensions/SS.
So income is low in but rents are high, naturally, in KW compared to the Metro. Both prices and rents are falling, irregularly.
My concern is that empty properties will remain empty for six months or more, and be completely uninhabitable as a result of not being maintained.
Those retirees just got their margin call. The are in forced liquidation mode. Stocks down 55% and housing crashing…
Nice post. Impressive that can you find the time to do this and put in the hours required of a medical resident.
I’ve been renting in a high foreclosure beachfront Hollywood, FL condo complex for over a year. Wanting to buy, I’ve watched prices come down to $125K for condos purchased for $300K. Unfortunately, Broward County (includes Ft. Lauderdale), as others, base taxes on previous assessments and they went up in 2008! 2009 taxes are released in 6/09. Anyone think they’re going down?? So, to buy the $125k condo, taxes are $8K/yr, HOA/maint $500/mo (w/go up), Insurance $700/yr. Paying a rent of $1200 which includes a/c, heat, cable TV (benefits of renting from condo owners), there is no way current housing prices beat renting and can’t unless there’s a huge price decline as taxes will likely increase. Even homesteading the condo w/a $50K assessment reduction takes about 20% off taxes, which would then be $6K but not until 2010 when, in FL, you are first eligible when buying in 2009. Even using the $8K gov’t credit doesn’t make it a buy. Only if prices were to go up in the next 5 years to offset the taxes would it be currently worthwhile. Yet, Trump Hollywood is under construction next door and is supposedly sold out.
Yes, county assessed values are absurdly high.
They are supposed to start counting short sales and I believe REO’s in the comparables.
http://www.marketoracle.co.uk/Article9167.html
Hi, everyone!
I was planning to buy a house in Palmetto Bay. Does anybody have any idea if prices in this area will continue to go down, even cosidering foreigners that are coming to buy properties there now?
I would really appreciate any comments.
You’ve got to be joking right? What Realtor sold you the foreigner savior BS?
Please read some of my older posts. ALL CURRENCIES HAVE TAKEN A SEVERE BEATING AGAINST THE DOLLAR. Miami-Dade housing is anywhere from 25% to 60% more expensive for them from this factor alone. Add in the fact that mortgage interest isn’t tax deductible and they have to pay higher taxes and you have plummeting foreigner interest.
Miami was just as beautiful in the 1990s and 1980s (and foreigners loved to live here) but for some reason prices were not at insane levels…
Prices will retrace to 1997 levels in real terms and perhaps nominal terms. As long as inflation is kept at bay (banks not lending money govt is printing out) home prices will continue to crash 3%/month. Don’t forget your Realtor makes a 3%-6% commission if she can manipulate you into purchasing a home….
Thank you for your reply. I was doing some number crunching and decided to see what you think. A house that had a market value of $950,000 in 2007 and was bought in 2004 for $640,000 and now lists for $576,000. How much lower do you think it can get?
What a great insight you guys have given me into the “real” housing situation in Fl.
Iwas looking to buy a condo in Bradenton 2 years ago when the British Pound was at $2.00. It didnt happen. The Pound is now at $1.37 and prices have slumped.
I can foresee a lot of pain yet for the homeowners over there.
Thanks for all the info……..Dave
Great blog - nice post.
I think the stats are real - just moving lower due to the house rental market and not due to apartments. Foreclosures added to the market have dropped rents.
If you’re renting an apartment, times are tough.
Therefore the stats need a footnote from reality - added anecdotal evidence.
My questions are
How mucdoes cost it Tampa area for monthlyh