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Something about the housing market I don't understand

July 6th, 2008 at 02:54 pm

Where we are... its highly military and a lot of military people bought homes during the housing boom, ourselves included.

When the military relocated, which is typical with 3-5 year tours of duty, when people couldn't sell their homes, they started renting them out. We skipped the attempting to sell your home part and just went straight to the landlord part when we bought our 2nd home.

Servicemembers were eager to just get their homes rented, so they started pricing their rentals competitively and undercutting what the current market rates were.

Last year I was easily able to rent my rental out for $1/sq ft... this year a more competitive rate is $0.86/sq ft. Meanwhile home prices are still falling.

How is this possible? There is an increase in rental properties at continuing lower rates while real estate values are also dropping. Don't rentals and real estate tend to work in opposite directions?

I keep wondering when the overall market may turn around, but this one - well, I also just BARELY remember Economics 101,I don't understand.

I'm not really sure why both real estate and rental prices are going down together. What makes rental prices rise? I thought it was inflation which is definitely happening. Then when rentals rise to a point that it makes homeownerships a not-so-big jump, people start buying.

*sigh* Maybe it is time to read some articles about economics and how these things work.

2 Responses to “Something about the housing market I don't understand”

  1. Amber Says:

    I can't remember as well but am glad you were able to rent the place for a little more

  2. baselle Says:

    Yes, it is a puzzlement, but I think part of it is simple supply, demand, and price. Housing prices are falling in part because there is so much supply (lots of houses, condos, townhouses, etc) and no demand (no buyers - or at least no buyers who can buy or even qualify with "easy" credit).

    Rents are also falling because while there is fair amount of demand, there still is so much supply. Rents can only go up a certain amount - they have to reflect wages. Thankfully, you can't get a ARM loan for rent. (bad enough using a credit card) That's a good thing, but perhaps a bad thing for someone thinking that a renter can make up their mortgage. Now the more saavy renters are checking up on the credit history of their landlord. After all, who wants to be a renter of an about to be foreclosed place?

    I think that when both supply, demand, and price are in some sort of reasonable equilibrium, then you get the effects you describe.

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