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Portland’s Rental Market Heats Up

It should come as no surprise that as the real estate market has cooled, the rental market is becoming cut-throat, as reported in the Oregonian. The rental market is sounding more like last year’s real estate market. Come prepared or someone is going to beat you out.

Last year we had a so-so time renting two of our houses out. This year, I put one on Craigslist at about 9PM on a Saturday night. After five responses in the first hour, I took it off the site. It reminds me of when I was competing for a rental in San Francisco about six years ago. Arrived to meet the landlord with all three of our credit reports in hand.

Renters need landlords, landlords need renters and they both need a property to make the relationship work. Landlords are having a hard time “cash flowing” with a new purchase because of rapid appreciation that real estate experienced without the same happening to rents. No doubt that, at least today, a renter can get a nicer place for less cash-out-of-pocket monthly that they can buy. Even if there is a correction in real estate prices, it isn’t going to happen overnight and rents may finally start to reflect that which will in turn make properties look better on paper for the landlord.

16 Comments on “Portland’s Rental Market Heats Up

  1. The old Buy now before your rent increases FUD – wondered when it would get trotted out.

    I’d rather pay 5% more rent (and still pay 30% less than the same property would sell for) than find myself 100k+ underwater on a mortgage in a years time.

    Leverage cuts both ways – like Cramer says – if you buy now you WILL lose money.

  2. I’m thinking this is a short-term phenom. Yes, things appear to be tight in rental-land right now primarily because a lot of Apartments have been converted to condos by specuvestors. But we’re also starting to see condos get converted back to apartments (The Wyatt, I think it’s called, is an example in the Pearl). Also, if you’re a seller at this point and you’re looking at the calandar you’ve got to be thinking that we’re entering the traditional slowdown in sales. Add to that the already slow sales of the last few months and if a seller is in need of cash-flow they’re probably going to put that house/condo on the rental market till next spring or summer. Better to get some income than none if you’ve got a mortage to pay on the property.

  3. Huh? That was some convoluted language. Yes, everyone rush out and “lock in” that $2300/month house payment or risk being priced out of the rental market. FOREVER.

    Amazing what people will do and say when their income is threatened by a real estate crash.

  4. Naysayer and Git need to read what I am writing before they comment. Nowhere does it say “buy now/lock in.” They draw their own conclusion and reword them as being mine. “The old Buy now before your rent increases FUD – wondered when it would get trotted out.” (FUD, Fear, uncertainty and doubt). Git trotted it right there because it certainly isn’t in my post.

    I say you can rent more home than you can buy now. So rent.

    Landlords can’t cash flow. Maybe they shouldn’t buy. Investment property is analytical, not emotional. If it doesn’t pencil, move on. If they’ve owned for years and haven’t sucked the equity out raising or not raising the rent makes little difference.

    Primary residence buyer? That’s between you and your God. What is good for one person is not necessarily good (or possible) for someone else.

    Bottom line: the roof-over-your-head-market is going to have to adjust. It’s not zero sum because it is a moving target. Like the saying says, buy low, sell high. When you figure out when that is going to be, let me in on the secret.

  5. I can safely assume your rental units are not in Hillsboro. “For Rent” signs are hitting the streets like illegitimate children, and just like those illegitimate children, they don’t seem to disappear. Next door, literally, the house sold August 1 after being on the market for approximately 5 months 2 weeks. The “For Rent” sign went up August 14, and the place has been re-listed several times on Craigslist, including some monthly rental reductions and sweeteners.

    Question:

    Assuming no change in market value, and further assume normal ‘wear and tear’ (i.e. no Katrina storms or other strange risk), what is a ‘reasonable’ rental rate in terms of percentage of purchase price, which equals current market value by our assumption. Of course this depends on a discount rate–make a reasonable assumption as necessary.

  6. “The rental market is sounding more like last year’s real estate market. Come prepared or someone is going to beat you out.”

    “After five responses in the first hour, I took it off the site.”

    “No doubt that, at least today[emphasis mine], a renter can get a nicer place for less cash-out-of-pocket monthly that they can buy.”

    Those are loaded statements designed to produce D&A (my acronym-doubt and anxiety) in people who didn’t fall for the last round of FUD which pushed so many into Portland houses that are now worth less than when they were purchased. A good try at obfuscation, but this blog isn’t designed to get people to keep renting.

  7. good try at obfuscation, but this blog isn’t designed to get people to keep renting.

    The goal is to build a repeat client base through intelligent discussion and education. It does us no good to create string of one time transaction. The clients that register through the blog have been some of the most enjoyable to work with. If that means you keep renting I have no problem with that and will probably be happier for it.

    I need renters as much as I need buyers and sellers.

  8. Well yes, I guess one could say that not selling houses gives you more time to do the things you enjoy.

  9. “I’m thinking this is a short-term phenom. Yes, things appear to be tight in rental-land right now primarily because a lot of Apartments have been converted to condos by specuvestors. But we’re also starting to see condos get converted back to apartments.”

    I’m inclined to agree. But in addition to re-converting entire buildings back into apartments, you will also see individual condo units being rented out again. But since many of these condo conversions happened within the last year (or are still in progress) these rentals are temporarily off the market, restricting supply temporarily.

    This is exactly what is beginning to happen in places like Florida. Rent intially went up, but is now trending down again as all the speculators are trying to rent out their units (after failing to sell them) and entire buildings are being converted from condos to rentals. My working hypothesis has been that Portland would basically behave like other cities, just shifted by about a year or so. So far, this hypothesis has predicted most of what has happened since the beginning of this bubble.

    Rent prices are much more tightly linked to income than housing purchase prices. After all, rent has to be paid with real money that people actually earn. You can’t take out an adjustable-rate, neg-arm loan in order to pay rent. Because of this, I do not anticipate sustained rent increases without commensurate improvement in Portland’s income.

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  11. Denninger nails the housing problem in todays post: consumer debt levels, DTI ratios and income (or the lack thereof) are now key once again. Great read.

  12. Choice quote from today’s Denninger post:

    Stop lying to the American People. “Home Ownership” is indeed part of The American Dream, but you do not own your home until it has no mortgage on it! Therefore, serial refinancing, HELOC-taking and speculation are not part of Home Ownership. Neither are “subprime mortgages.” Only conservative mortgage underwriting is part of The American Dream.

    Amen. Can’t say it any better: most “homeowners” are really renting from the bank. I don’t know a lot of real homeowners.

  13. Charles – maybe I was a bit hasty slating you with that post – but to be honest much of that knee jerk reaction comes from listening the years of FUD spread by the NAR .

    In all honesty they do more damage to your profession than good – they’ve been consistently wrong for the last year or two and are trying to get people to buy houses at what historically is the worst time in living memory.

    “Buy now before your rent goes up” is just one of the inane lines of reasoning they’ve used recently.

    “Stop wasting money paying rent” – yet failing to mention you’ll be wasting MORE money paying interest to the bank if you buy.

    Housing here is about to take the plunge with the tighter lending standards and with people watching what’s happening in California – it’s the same rollercoaster – we are just in the back car not the front, we started up the incline later and start the plunge later – but income to home price is almost as out of wack – and it will return to the historical norms.

  14. Charles – maybe I was a bit hasty slating you with that post – but to be honest much of that knee jerk reaction comes from listening the years of FUD spread by the NAR .

    In all honesty they do more damage to your profession than good – they’ve been consistently wrong for the last year or two and are trying to get people to buy houses at what historically is the worst time in living memory.

    “Buy now before your rent goes up” is just one of the inane lines of reasoning they’ve used recently.

    “Stop wasting money paying rent” – yet failing to mention you’ll be wasting MORE money paying interest to the bank if you buy.

    Housing here is about to take the plunge with the tighter lending standards and with people watching what’s happening in California – it’s the same rollercoaster – we are just in the back car not the front, we started up the incline later and start the plunge later – but income to home price is almost as out of wack – and it will return to the historical norms.

  15. Rentals are hot in the Naples, Florida market too! One home on the beach is available for just $40,000 per month…seriously? Why would you throw the money away???

  16. Worst housing market in living memory? Well interest rates in ’83 were over 13%, sounds a little worse than what people pay now doesn’t it?

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