One of the drivers of the recent housing boom was the exodus of renters to the purchase market. The rent versus buy decision became a buy and the rental market was decimated. Rents fell sharply as demand waned. Developers struggled to get condo developments into the pipeline to meet demand.
Fast forward to today
Rents are rising rapidly [REJ] and demand for condos are easing. Higher purchase prices are creating a legion of disaffected would-be buyers to take a breather. “Maybe I’ll rent for a year and see what happens to the purchase market.” Interviews with rental brokers indicate that most would-be buyers who make the move to rental are signing a one year lease. The rental demand surge started at the end of 2005 but reached frenzied status in mid-2006.
But would-be buyers are finding that rents are up 20% to 30% this year in New York, so its getting expensive to rent an apartment.
Yesterday I was asked by a real estate broker: “With many of my customers saying they want to buy but would rather wait six months to see what happens than make a decision now, how do I respond to that?” My answer: “Tell them ‘See you in six months.'” What else can you say (thats why I am an appraiser, not a salesman)? In other words, there is really nothing to say until the would-be buyers have vetted the issues and are comfortable with the market. Hard selling the issue probably won’t work. Would-be buyers may eventually buy, but those who decide to wait 6 months may be faced with increased competition next spring if the “bounceback” occurs. Of course, thats a big “if.”
The consumers are being faced with high housing costs in either the rent or buy scenario. We are seeing some would-be renters return back to the purchase market in rising numbers…The Bounceback. Not a wave, however, but a noticeable increase.
Its going to be interesting next spring, with several factors in the purchase market’s favor: rents will likely be higher than they are now [Col], mortgage rates are projected to be at or below current levels [SeekingAlpha/WSJ] and, assuming housing prices remain relatively stable, those renters who moved en masse that signed leased last spring have to make the tough choice again. The rental market has the advantage of safety. That doesn’t make the decision any easier. Its difficult go through the bounceback.