Monday, April 9, 2007

Housing markets slump and rents start rising rapidly

"Federal Reserve is very concerned about the inflation from rising rents. Before the recent real estate bubble collapse, people were buying homes and leaving the rental apartments. It made sense at that time to buy than to rent with real estate moving up close to seven to ten percent every year.
Now people are favoring rentals to buying residential real estate. Consequently, the rents are rising rapidly. According to some studies rents are rising at the rate 4-6% per year at this time. This adds to consumer price index and the Fed is really concerned about the same."

This makes sense if you consider that a lot of housing capacity has not yet hit the pipeline, adding to the number of units that just won’t sell. There is currently a lot of housing stock for sale, still more being built and some sidelined standing empty as flippers wait for the housing market to improve.

I expect that available rental units are not currently keeping pace with the numbers of people now looking to rent, - bubble sitters and those forced to sell or walk away from their dream palaces.

The houses that were previously owned however don’t just disappear. If they are not re-sold they will have to enter the rental pool at some point or sit empty. I don’t expect a sudden large increase in U.S. population so the net affect will have to be an eventual increase in available rental units and a resulting downward pressure on rents.
Vern

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