For once, this directly affect me. I've been looking for a place since November 2022 in Los Angeles and it's the opposite that I see.
In November, I'd find 4 bedrooms for $3800 (2000+sqf). I thought it was expensive, but someone always got it before me. Now we are in March and I can't find anything reasonably close with 4 bedrooms for less than $4,500. And again, someone is always snatching these before I get them.
Maybe when you average out all the prices it seems to be going down. But browsing through the zill/apt/red/etc. does feel like prices are going up.
The latest episode of the Odd Lots Podcast (Feb. 27, 2023) titled "Why We Don't Build More Apartments for Families"
> On this episode of the Odd Lots podcast, we explore the hidden incentives and regulations that deter builders from making more family-friendly buildings.
> 4br isn't exactly a common scenario in the apartment market.
On the builders side maybe not, because it's less profitable to build a highrise or large block with few but large units that have low churn and so less opportunities to raise rent.
On the demand side however? Completely hot market, because families want their children to have separate rooms (a fact that has been correlated with learning success even in 2006 [1], and most obviously during the pandemic years). A 3BR is barely enough for a family with two children, but now with the rise of home-office/fully remote work you'll need a 4 or even 5 BR simply to have enough room.
4br are very common in specific markets e.g. college towns, but yeah in professional areas probably not. Families needing to rent will probably look for houses more than apartments.
My wife and I have been looking to buy something in LA and we’ve been outbid by $100k+ twice already.
The LA market is simply insane whether you’re buying or renting. The only “deals” I’ve seen are on properties with clear flaws (e.g. poor location, bad floor plan, etc.)
I’m not sure where you’re looking exactly, but all I can do is wish you luck and say yes, LA real estate is tough.
I've seen many with gotchas. Pictures look fantastic, first visit looks great, and then on the lease it says this is just the model unit. The actual unit available is the one facing the freeway.
With these prices I'd love to buy, but it takes a while to gather the deposit with a new job. If all fails, orange county it is.
I see 1 bedroom apartments for $2k-ish everywhere. 2 bedroom apartments for less than $3500. that's just normal if not below average for a major metro.
This could be observation bias because the above-median listings are going to sit longer. So you scroll through, and that's what you see. The at-market or below-market listings will be quickly filled and removed. The same thing happens in the for-sale market too.
The same thing is true for order books for stocks. Anything that matches the buyer and seller at an agreeable price is fulfilled. The people selling too high or bidding too low sit on the order book longer.
I own a few rental properties. During my last renewal cycle, I kept rent flat and every single tenant renewed no questions asked. A friend was competing with 30 other people for a townhouse rental for them and their two kids.
Obviously this is one stranger’s uninformed opinion, but I do believe this situation will change faster than people would think.
So much money has been put into real estate as an investment due to unprecedentedly cheap debt over many years that it’s only beginning to unwind now.
Prices are falling, at least regionally. I don’t see how the real estate market can support small falls without a full crash, as unless there are substantial gains each year, landlords are facing mounting adjusted losses due to interest rate rises. Given the amount of leverage in real estate, most won’t be able to weather this storm without becoming insolvent, and those that can won’t be willing to do so.
tldr; I have high confidence this is just the beginning of a severe correction. (Again, just an armchair observer with an opinion).
> I don’t see how the real estate market can support small falls without a full crash, as unless there are substantial gains each year, landlords are facing mounting adjusted losses due to interest rate rises.
In the US at least, this is unlikely to happen as mortgages are almost all fixed-rate. In fact, with inflation pushing up rents and reducing everyone's relative amount of debt, it's probably a great time to be a landlord.
Different markets can behave wildly differently. Not just different states/cities but different kind of homes too (appartment vs single family, size, standing, etc).
So talking about the overall market always hides big differences in each market.
Housing prices are very much priced based on supply and demand. When supply is constrained, for whatever reason, prices go up.
You have a couple things happening right now that are constraining supply:
1. Building has never fully recovered from the last housing crises.
2. Banks own way too much real estate and that leads to a level of price control if for no other reason then they can afford to be patient.
3. Speaking about the USA in particular, there is a lot of NIMBYism.
If you want to decrease prices build more. Don’t worry if it is low income or high income, just build more and prices will go down. It is unrealized revenue to let apartments sit empty and most private sellers can’t afford nor want to keep paying property taxes on a home that won’t sell.
I’d add that building more is not the only solution to increasing supply: some societal and zoning changes, like bringing back boarding houses would make a meaningful impact on supply. Apparently 1/3-1/2 of urban dwellers either rented a room or were a boarder [1] in the 18th century.
This kind of housing is still common in NYC, mostly in Queens. It’s all under the table and obviously illegal, but it’s the most affordable option in a prohibitively expensive city. I would say most are run by slum lords who are not dealing with tenants fairly in someway, for example price gouging or prejudicial application processes (no Muslims, must be Japanese, must speak Spanish, etc.).
The city has tried to squash these because they’re dangerous. During the last major floods hundreds were injured and many died due to these basement boarding units flooding.
I agree with sibling posters when I say making these more prevalent would be a step backwards. Source: I used to live in one!
>When supply is constrained, for whatever reason, prices go up.
It's the law of supply and demand, when supply goes down but demand remains the same or goes up, then it moves the price equilibrium up.
This is why the only solution is to build more and add more supply to meet demand. Everything else is a half-measure that will fail or is a lottery solution (i.e. BMR and affordable housing requirements) that only solves the issue for a few lucky winners.
>2. Banks own way too much real estate and that leads to a level of price control if for no other reason then they can afford to be patient.
Are you suggesting that the banks are leaving the homes vacant? If not, and they're renting it out, doesn't that add to the housing supply insofar as supplying places for people to live?
Yes, where I live, the banks are intentionally leaving the homes vacant. After the shit hit the fan in 2008/2009, the government bailed out a bunch of banks and acquired a bunch of houses in the process. Those houses have been slowly leaking to market so they 'wouldn't disrupt the housing market'.
In my experience builders build luxury condos and apartments that are priced the same as the overpriced rent rate standard the city is at right now. Last I checked new builds were at 3.5k/month for a one bedroom apartment in the city. Really great apartment, don't get me wrong, but not sure why people keep beating the "if you add more supply, the price goes down" drum, it doesn't seem to hold true in reality.
New construction is not a short-term solution. A reasonable rate of construction increases the housing supply by 2%/year. After 20 years, there should be 50% more housing, which should have a significant impact on prices.
> not sure why people keep beating the "if you add more supply, the price goes down" drum
The cynic in me assumes it's because they're investing in real estate and want more real estate to invest in, so they can continue profiting off the backs of people who just need a place to live
important wrinkle: in SF, leases are (can be) long term arrangements, i.e. limited annual rent increases and very hard to evict. Landlords won't drop prices if it locks them into a bad economic situation, or even if they perceive that rents will rise quickly in the next few years.
also in general, with real estate owners are very reluctant to drop prices and "lose" money - instead, prices rise more slowly and/or stagnate. If you see a big price drop, that typically means the seller/landlord is desperate.
Reverse going on in Australia right now. International students have returned and a semi decent 2 bedroom apartment is now averaging $800/pw in Melbourne.
Housing here is insane. We need long leases, tenants on body corporate, and rent price controls. Really.. what we need is sustained investment in state housing, which all the states gave up on during the post-keating privatisation storm. They don't understand their role as provider of socialised influence in the rental market.
Its been left to private sector and 'negative gearing' tax breaks for investor-owners fuel the insanity. Now, with so many private owners vested, they are unwilling to risk voter backlash to undo the madness of 25+ years of bad planning.
In Queensland, they had a really stupid relationship with cooperative housing movements, co-owning properties in the inner city. Then they realized the huge value proposition in the land, booted the tenants out to cheaper outer suburbs and realized the capital gain. It sucks. Gutting suburbs like west end in Brisbane where I live did nobody any favours. Why shouldn't working class people live in the inner city too? They always used to!
(I'm an owner occupier. I just think rental madness in Australia is sucking life force out of younger people)
Everybody loves to hate on socialised housing but the alternatives are far far worse.
It's insane how the 3 countries with the most space per human & least historic infrastructure: USA, Canada & Australia also have the worst housing crunch in the world right now.
Housing is not an investment. It is a depreciating asset. The anglo-world has done to housing what Singapore has done to cars. It is no wonder that a Toyota Camry costs 150,000 USD there.
Same in the UK. Rents were up 10% annually in 2022. Meanwhile, new housebuilding is at the lowest level since WW2, and the government has surrendered to NIMBYs and abandoned all construction targets and loosening of planning laws. Looking forward to the when shantytowns start popping up in the UK, to really underscore its regression to developing nation status.
Cries in San Francisco. I get the sense that "rents falling" is a narrative that manages to consistently skirt popular urban centers like SF, LA, NYC and co.
Rental units generally change hands much more frequently than owned homes. Accordingly, rental units offer a more real-time view of housing cost trends.
There are also a lot of homeowners who locked in at a very low interest rate (both new homes and refinancing) with little incentive to move any time soon.
Somewhat related: there was a discussion on NPR about how new builds will likely be much more popular because of rising interest rates. The cause is that there will be a much smaller supply of previously owned homes because owners won’t want to refinance at the much higher rates at the moment.
According to Slate Money, the reason that new builds are in more demand is that builders have programs that will reduce the interest rate by around 2% making the mortgage lower than a similar price existing home.
In Seattle, a converted apartment will generally have much lower build quality (e.g., wood walls rather than concrete), so it's not going to appeal to someone in the market for a purpose-built condo. The business of selling condos is also significantly less attractive to developers.[1]
What's the difference between the two? Every rental unit is ultimately owned by someone. And if rents are falling but your equity is rising, you are still coming out ahead.
A lot of large apartment buildings are single-owner/single-management with all units rented. Usually some sort of corporate owner.
Condo buildings might have id rentals offered by individual owners.
The former is (possibly) more likely to ask questions like “is it better to sell the whole building in the face of falling revenue?”
The latter, if their mortgage is lower than rental income, might just hold the unit regardless of the unit’s value. Probably a much less sophisticated owner/landlord than a big corporation.
The big issue is that condos come with a bunch of additional issues surrounding mortgages. Along with very different maintenance models.
It's one of the hidden problems of the housing shortage: condos are very difficult to get financing for which artificially deflates the market for them. Which means that our best form of housing in terms of the efficiency of building units isn't terribly attractive to actually build.
A fun little TIL: if you're talking between cultures/countries you may be talking about different things here without realising it. For example, an apartment in Australia can be rented or purchased, it just refers to a type of construction, not an ownership structure. In the US it appears to be quite a different set of terminology!
Probably some. A house and an apartment you own aren't really comparable anymore as the appeal of urban living for professionals has declined, however.
Probably most likely impact is the decline on new apartment development and perhaps dilapidation of some of the stock ("if I can't get 3k/month for this place anymore, fine I'll charge 2k but I won't bother maintaining it")
Isn't it the other way round? When rents are higher, how well maintained the house is matters less to tenants compared to the location and rent. But when rents are low, they have more freedom to choose a well maintained house.
If you're talking about long-term maintenance so that skipping it is just deferring costs to greater costs in the future, then why would a landlord do that unless they expect to demolish the house before ever fixing it up?
Jersey City here. We're building 10,000 new apartments a year but everything is full and rents are up again this year, its probably 20-30% higher than pre-covid. The new construction has just attracted new crowds, it hasn't helped.
Wouldn't that suggest that the development is lagging existing demand? Jersey City seems like a prime spot for spillover demand from Manhattan, so I'd probably expect that cycle to continue until it reaches parity with similar neighborhoods.
It HAS helped, because those residents had to move away from somewhere to live in those shiny new units. Any time you build housing, you're helping. And we need to keep building housing, because the population is increasing.
Readit News
In November, I'd find 4 bedrooms for $3800 (2000+sqf). I thought it was expensive, but someone always got it before me. Now we are in March and I can't find anything reasonably close with 4 bedrooms for less than $4,500. And again, someone is always snatching these before I get them.
Maybe when you average out all the prices it seems to be going down. But browsing through the zill/apt/red/etc. does feel like prices are going up.
... still looking for a place by the way
> On this episode of the Odd Lots podcast, we explore the hidden incentives and regulations that deter builders from making more family-friendly buildings.
On the builders side maybe not, because it's less profitable to build a highrise or large block with few but large units that have low churn and so less opportunities to raise rent.
On the demand side however? Completely hot market, because families want their children to have separate rooms (a fact that has been correlated with learning success even in 2006 [1], and most obviously during the pandemic years). A 3BR is barely enough for a family with two children, but now with the rise of home-office/fully remote work you'll need a 4 or even 5 BR simply to have enough room.
[1] https://taz.de/Enge-macht-dumm/!409005/
This is because the amount of new units deployed was staggering.
In some towns in the Texas Triangle, there were literally more new units delivered this year than existing supply.
Doing something like that in LA or NYC would be absurd, given how much existing supply there is... Nevermind the Nimbyism.
And yet, Orlando has something like a 1/3rd increase in supply coming. So there are some big cities that are exceptions.
If you're in a place like NYC or LA or Chicago - where the increase in supply is like 2% - don't expect much relief from new supply...
My wife and I have been looking to buy something in LA and we’ve been outbid by $100k+ twice already.
The LA market is simply insane whether you’re buying or renting. The only “deals” I’ve seen are on properties with clear flaws (e.g. poor location, bad floor plan, etc.)
I’m not sure where you’re looking exactly, but all I can do is wish you luck and say yes, LA real estate is tough.
With these prices I'd love to buy, but it takes a while to gather the deposit with a new job. If all fails, orange county it is.
Wish you luck as well :)
How do you determine these?
I see 1 bedroom apartments for $2k-ish everywhere. 2 bedroom apartments for less than $3500. that's just normal if not below average for a major metro.
The same thing is true for order books for stocks. Anything that matches the buyer and seller at an agreeable price is fulfilled. The people selling too high or bidding too low sit on the order book longer.
So much money has been put into real estate as an investment due to unprecedentedly cheap debt over many years that it’s only beginning to unwind now.
Prices are falling, at least regionally. I don’t see how the real estate market can support small falls without a full crash, as unless there are substantial gains each year, landlords are facing mounting adjusted losses due to interest rate rises. Given the amount of leverage in real estate, most won’t be able to weather this storm without becoming insolvent, and those that can won’t be willing to do so.
tldr; I have high confidence this is just the beginning of a severe correction. (Again, just an armchair observer with an opinion).
In the US at least, this is unlikely to happen as mortgages are almost all fixed-rate. In fact, with inflation pushing up rents and reducing everyone's relative amount of debt, it's probably a great time to be a landlord.
So talking about the overall market always hides big differences in each market.
You have a couple things happening right now that are constraining supply:
1. Building has never fully recovered from the last housing crises.
2. Banks own way too much real estate and that leads to a level of price control if for no other reason then they can afford to be patient.
3. Speaking about the USA in particular, there is a lot of NIMBYism.
If you want to decrease prices build more. Don’t worry if it is low income or high income, just build more and prices will go down. It is unrealized revenue to let apartments sit empty and most private sellers can’t afford nor want to keep paying property taxes on a home that won’t sell.
[1]https://en.m.wikipedia.org/wiki/Boarding_house
The city has tried to squash these because they’re dangerous. During the last major floods hundreds were injured and many died due to these basement boarding units flooding.
I agree with sibling posters when I say making these more prevalent would be a step backwards. Source: I used to live in one!
It's the law of supply and demand, when supply goes down but demand remains the same or goes up, then it moves the price equilibrium up.
This is why the only solution is to build more and add more supply to meet demand. Everything else is a half-measure that will fail or is a lottery solution (i.e. BMR and affordable housing requirements) that only solves the issue for a few lucky winners.
Are you suggesting that the banks are leaving the homes vacant? If not, and they're renting it out, doesn't that add to the housing supply insofar as supplying places for people to live?
https://www.auction.com/blog/where-have-the-reo-investors-go...
When securitized, there are rules and the “buy-and-hold” investors want to avoid those.
Estimates put 60,000 vacant units in San Francisco.
What number of vacant, newly built units do you believe will actually bring prices down?
https://www.sfchronicle.com/realestate/article/SF-Victorian-...
https://www.kron4.com/news/bay-area/61000-homes-are-empty-in...
In my experience builders build luxury condos and apartments that are priced the same as the overpriced rent rate standard the city is at right now. Last I checked new builds were at 3.5k/month for a one bedroom apartment in the city. Really great apartment, don't get me wrong, but not sure why people keep beating the "if you add more supply, the price goes down" drum, it doesn't seem to hold true in reality.
Plenty of empirical, academic studies show it does hold true. See: https://www.theurbanist.org/2021/06/02/new-round-of-studies-...
But the numbers matter. Adding a tiny bit of supply is better than no supply, but won't help as much as a lot of supply.
The cynic in me assumes it's because they're investing in real estate and want more real estate to invest in, so they can continue profiting off the backs of people who just need a place to live
also in general, with real estate owners are very reluctant to drop prices and "lose" money - instead, prices rise more slowly and/or stagnate. If you see a big price drop, that typically means the seller/landlord is desperate.
When the residential vacancy percentage rate is more like 15%, then I expect that prices will crash hard.
When the article discloses year over year figures, sure enough, rents are still rising. (Supposedly “decelerating.” No details given.)
Its been left to private sector and 'negative gearing' tax breaks for investor-owners fuel the insanity. Now, with so many private owners vested, they are unwilling to risk voter backlash to undo the madness of 25+ years of bad planning.
In Queensland, they had a really stupid relationship with cooperative housing movements, co-owning properties in the inner city. Then they realized the huge value proposition in the land, booted the tenants out to cheaper outer suburbs and realized the capital gain. It sucks. Gutting suburbs like west end in Brisbane where I live did nobody any favours. Why shouldn't working class people live in the inner city too? They always used to!
(I'm an owner occupier. I just think rental madness in Australia is sucking life force out of younger people)
Everybody loves to hate on socialised housing but the alternatives are far far worse.
Housing is not an investment. It is a depreciating asset. The anglo-world has done to housing what Singapore has done to cars. It is no wonder that a Toyota Camry costs 150,000 USD there.
I suspect that is the SF housing prices were not that high to begin with, not that many people who have left when remote became possible.
I wonder if this means we'll start to see a lot of apartments convert to condominiums to equalize this imbalance?
There are also a lot of homeowners who locked in at a very low interest rate (both new homes and refinancing) with little incentive to move any time soon.
[1]: https://kuow.org/stories/why-are-condos-in-seattle-so-rare-a...
https://www.nytimes.com/2023/02/24/realestate/florida-condo-...
A lot of large apartment buildings are single-owner/single-management with all units rented. Usually some sort of corporate owner.
Condo buildings might have id rentals offered by individual owners.
The former is (possibly) more likely to ask questions like “is it better to sell the whole building in the face of falling revenue?”
The latter, if their mortgage is lower than rental income, might just hold the unit regardless of the unit’s value. Probably a much less sophisticated owner/landlord than a big corporation.
It's one of the hidden problems of the housing shortage: condos are very difficult to get financing for which artificially deflates the market for them. Which means that our best form of housing in terms of the efficiency of building units isn't terribly attractive to actually build.
I wasn't aware of this difference until just now.
Probably most likely impact is the decline on new apartment development and perhaps dilapidation of some of the stock ("if I can't get 3k/month for this place anymore, fine I'll charge 2k but I won't bother maintaining it")
If you're talking about long-term maintenance so that skipping it is just deferring costs to greater costs in the future, then why would a landlord do that unless they expect to demolish the house before ever fixing it up?
Quip: If it was actually the new construction that attracted the new crowds, then there would be a whole lot more apartments out in rural cornfields.