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Thread: Rents are going up

  1. #1
    God/dess Deogol's Avatar
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    Default Rents are going up

    People cannot afford houses.
    People cannot afford to sell their houses and so are trying to get renters to pay for em.

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    Banned Melonie's Avatar
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    Default Re: Rents are going up

    Yup, lots of other data on rents is starting to hit other news outlets as well. However, as with housing, a number of pertinent tidbits are being left out of these news reports ...

    A. every former homeowner who has been forced into bankruptcy due to rising ARM payments, property taxes, energy costs etc. winds up now being a renter !

    B. tightening creditworthiness standards and new stricter regulatory guidelines towards financial institutions are now preventing many would-be first time home buyers from qualifying for mortgage financing, forcing them to remain in the 'renters' pool even if they didn't really want to keep renting.

    C. even at rent levels that are significantly higher than last year, the net cost of renting is still WAY below the net cost of home ownership in most locations given rising property taxes, rising insurance premiums, rising mortgage interest rates etc, thus many people who could be homeowners have chosen not to be. The news stories make the point that many people are renting in the 'short term' while waiting for real estate prices to fall further before buying a house. However, this neglects to point out that many well-to-do people are content to save money by being long term renters even though they could easily afford to buy a house.

    D. both apartment building and single/duplex property owners / landlords have taken a major financial 'beating' re profit margins on rentals for the past few years, thus private sector growth / development of new apartment stock has been virtually non-existant.

    E. gov't owned subsidized apartment complexes have turned out to be a major 'drain' on state gov't social welfare budgets, such that very few new gov't owned subsidized apartments have been constructed in the past few years.

    F. virtually every new illegal immigrant family winds up renting, creating constant new demand for low priced rental apartments.

    In short, the 'tin foil hat' crowd would argue that the bubble in real estate prices (i.e. monthly cost of home ownership) has been accompanied by a similar 'divot' in rental prices (i.e. monthly cost of rent) ... such that these two opposite sides of residential housing must now seek to equalize. If housing prices fall by 20% across the board, it is probable that rental prices will rise by 20% across the board. Also, the higher that US interest rates rise, the more housing prices will fall and the more rental costs will increase.

    The 'tin foil hat' crowd would also point out that the US gov't has created a potential 'minefield' for itself by the skewing of rental vs home ownership costs in the CPI formula. In other words, the gov't has heavily emphasized rental costs (which have been steady for the past few years) and heavily de-emphasized real estate prices (which for the past few years have been skyrocketing) in order to keep the CPI number low ... along with the SSI checks, civil service paychecks, TIPS bond interest payments etc. which are indexed to the CPI. Now that real estate prices are falling but rental costs are rising, the CPI number is going to skyrocket, along with gov't expenditures for SSI checks, civil service paychecks, TIPS bond interest etc. (unless of course the gov't decides to change the CPI formula again). This has the potential to form a vicious circle, with a rising CPI forcing the Fed to raise interest rates to fight inflation, which in turn causes 'marginal' homeowners into foreclosure / bankruptcy, which in turn causes real estate prices to fall further and rents to rise further, which in turn causes the CPI to rise even further starting the entire process over again !!!
    ~
    Last edited by Melonie; 10-26-2006 at 01:27 PM.

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    God/dess leilanicandy's Avatar
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    Default Re: Rents are going up

    Yea see I wanted to get a house this year. I am totally scared to get an house now! I have notice rent has went up a whole lot! I want to get a house but I feel lke this is not a good time.
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    God/dess Deogol's Avatar
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    Default Re: Rents are going up

    We are in that in between time...

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    Featured Member Vamp's Avatar
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    Default Re: Rents are going up

    Right now is a good time to wait til home prices level out. Working on credit scores and saving for a down payment.

    My prediction from all I am seeing from the inside of the financial world is that credit criteria will be changing next year.

    It is important now more than ever to do your homework, work hard, and get the right mortgage the first time.

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    Banned Melonie's Avatar
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    Default Re: Rents are going up

    My prediction from all I am seeing from the inside of the financial world is that credit criteria will be changing next year
    Actually the new regulatory guidelines are already 'out there' re income verification and risk management, and many of the subprime lenders have already announced changes in credit criteria. You're right though that this will take a bit longer to filter its way through 'mainstream' banks - who don't have as much of a risk problem from their borrowers, but who do arguably have a larger problem with collateral 'assets' that are declining in value - which is likely to lead to major changes in future down payment requirements by 'mainstream' lenders.

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    Featured Member Vamp's Avatar
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    Default Re: Rents are going up

    From what I am hearing thru the grapevine, seems the new guidelines are going to be tougher than one might think. Some large financial companies are bracing for a major slow down in profits next year because of it.

    Hopefully it wont be that bad.

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    Banned Melonie's Avatar
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    Default Re: Rents are going up

    ^^^ unfortunately, there is a very good chance that it WILL be that bad for a number of 'mainstream' financial institutions. At the moment, they are able to carry delinquent loans as if they are still 'performing', and they are also able to book unpaid penalties. fees and additional interest charges as 'earnings' (even though there isn't any actual cash coming in from the borrowers). When these loans finally percolate through the foreclosure / bankruptcy process and must finally be 'written off' as non-performing, not only will the booking of 'false' profits come to a screeching halt but actual losses will have to be booked (i.e. auction prices falling short of outstanding loan balances). This however may lead to some very interesting personal profit opportunities by shorting (or buying put options) on the stocks of financial institutions that are deeply involved in real estate loans.

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