We wonder in amazement when we see that housing costs stop rising at 20 percent. The bubble bloggers begin to crow that the market will collapse. The builders panic as they got caught riding the wave of economic opportunism and have to retrench. Real Estate agents think that they will never sell a home again.
But the landlords start smiling. Easy money got many into homes. Now harder money and a slow market are causing many who would have bought to be sitting on the sidelines. And since they still need shelter, demand for rentals is soaring. And, surprise, surprise, rental rates are soaring as well.
At its basic level, the relationship between homes and apartments works this way: When money was cheap — because interest rates were low — people were able to buy houses easily.
When it was easy to buy a house, demand for apartments fell.
“As the housing market booms, that’s when the rental market goes down,” said Liberati. “When people can buy cheaply, obviously, why … pay the same amounts (on apartment rent) that they can buy a house for?”
Then, two things happened. Interest rates rose, increasing the cost of borrowing. And home values, driven by the frenzied pace of buying during the boom, rose to a level where many people — particularly first-time homeowners — could no longer afford to buy.
“Owner-occupied housing is far less affordable now than it was 36 months ago,” said Dan O’Connor, managing director of global research and forecasting for Global Real Analytics, a San Francisco research firm.
Because homes are less affordable, more people are turning to apartments, this theory goes. via phillyBurbs.com
Now here is the dirty secret. When the rental rates get too high, these same folks will see the value in home ownership… Hmmm, and pinky promise that you will not repeat this part. The housing gains in the big run up will be locked in due to the perceived value as opposed to renting.
Amazing how markets work so efficiently. But don’t tell those that are looking for the big blow up. They will be very disappointed and it will ruin their party.