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May 14, 2009 – Comments (8)

in London on commercial property.

 I suspect rents will be falling in places where they have gotten out of line with affordability, whether to rent a home or to operate a business.

Vancouver is an economy to look at because of the high real estate values for years.  It first went through a comparable bubble from 86 to 93.  Essentially if you were in the housing market before then Vancouver has been a great place and affordable place to live.  If you did not, well, this where an enormous division of wealth has occurred.  Those who were not in the housing market have simply seen a higher and higher part of their income going to housing. 

The economy has stagnated ever since.  There has continuously been a well educated population that has been under employed and wages or buying power has been declining since the 80s or the 79 to 81 housing bubble.  The earlier housing bubble had housing prices correct back to affordable levels.  The 86 to 93 bubble had no such correction and I would attribute that to Greenspan's meddling in the market and stepping interest rates down continuously over a 20 year period.

But now the consequence of declining buying power and over valued real estate is playing out.  I did an earlier blog on this really bad research that was saying Vancouver, the most expensive city in Canada by about 20%, was not as over priced as cheaper cities because of the higher rents. 

Rents are going to get back into line with what is affordable based on income, as will housing. 

8 Comments – Post Your Own

#1) On May 14, 2009 at 12:08 PM, awallejr (83.83) wrote:

I can tell you that isn't happening in NYC.  Well on the commercial side rents are decreasing, but not so much on the residential side.  If anything they are still increasing since many units are rent stabilized.  And while rent stabilization prevents landlords from jacking up rents, it still allows them to increase rents year over year over year, which they always do and are continuing to do.

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#2) On May 14, 2009 at 1:13 PM, REITDUDE (91.75) wrote:

Ballpark Math

1. 1.3mm rent stabilized units at a max. increase of ~4%

2. .8mm units at market rate

1.3 * .04 = .8 * x (where x is % decrease in market rental rate)

x = 6.5%

-> awallejr, you're saying that NYC MARKET rents dropped by LESS that 6.5% from the peak?  You're in the ballpark (for now). 

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#3) On May 14, 2009 at 1:58 PM, awallejr (83.83) wrote:

No I am saying rent stabilized apartments generally never decrease, they always increase (well excluding Court ordered because of outstanding violations).  Your 4% increase is probably average for 1 year leases, 7% for 2 years this recent cycle.  The real advantage is they can't be jacked up at a Landlord's whim.  Trade off is they do always go up at some percentage. By their nature, they never peak, unless a massive exodus from the City happens I suppose.

There is strain on the commercial market at the moment.  That is a major reason why the whole World Trade Center rebuild is being scaled back dramatically.

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#4) On May 14, 2009 at 2:51 PM, dwot (69.85) wrote:

I disagree awallejr.  There has already been news of falling rents.

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#5) On May 14, 2009 at 3:36 PM, DarkToast (48.67) wrote:

I am moving at the end of the month. I looked at apartments in the area I want to move to. One of the apartments had been priced at $603 a month. When I looked at it a couple of days later the price had dropped to $580. These are large apartment complexes managed and owned by a nationwide company, I think they are called Equity Residential. This is right outside of Portland Oregon.

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#6) On May 14, 2009 at 4:25 PM, REITDUDE (91.75) wrote:

DarkToast, I'm in NYC.  Just moved from the lower east side to Wall St 2 months ago- rents are down 10%-20% from 2006 (I'm not a broker, just basing this on conversations with several as well as the two dozen calls I made directly to owner-operators).   

Landlords are begging to get you into 18 or 24 month leases instead of the typical 12.

I can't believe an EQR apartment is $580 over there.  My 6th floor walkup, steam-heated, former tenament building in the lower east side was 2K a month. 

 

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#7) On May 14, 2009 at 4:57 PM, awallejr (83.83) wrote:

Dwot I am talking about rent stabilized apartments.  Higher end apartments with doormen are under stress because of the wall street layoffs, but the bulk of the apartment building rent stabilized leases continue to rise every single year.  Now replacing vacancies such as what reitdude and that link is describing is a different ballgame but those are ultimately determined by market conditions. But you aren't churning rent stabilized aparts in general.  The vast majority are occupied by people who have lived in them for very long times.  They are even passed on from generation to generation.

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#8) On May 14, 2009 at 5:16 PM, EScroogeJr (< 20) wrote:

I live in NYC, though not in Manhattan. Personal observations: 1) Residential prices are up about 30% for the first 5 months of 2009. 2) Rents are growing, but not nearly as fast; 10% year-on-year is just about it. 3) Lines at Starbucks are getting longer and longer. As to Manhattan, I am inclined to agree that perhaps a 3-5% correction is underway now. At current prices, Manhattan RE propably offers a better value than the neighboring boroughs.

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