Mike “Mish” Shedlock adds the anecdote below to his coverage of New York City rents. The bottom line? A landlord estimates that rents are down 10%-20%, significantly more than has been reported.
The bigger picture here is that rents are under pressure nationwide. As they fall, the price-to-rent ratio used for real-estate pricing also adjusts. Specifically, all else being equal, it increases.
So don’t be too quick to assume that, because the price-to-rent ratio is finally reaching the upper end of normal, house prices will stop falling. The denominator is now falling, too. (Chart below courtesy of Calculated Risk).
In response to NYC Apartment Rents Drop 7-10 per cent, National Vacancies Highest in 22 Years I received an interesting Email from a landlord in NYC about how much rents are really falling. JAL Responds:
I’m a landlord here in NYC (as well as an avid reader of your blog) and I actually feel the 7-10% drop mentioned in the article understates the case somewhat. First off, many landlords in order to keep their rent rolls higher (possibly for mortgage purposes) will give incentives such as the free month mentioned in the article quoted, but this lowers the effective rent by 8.5% in itself. (Needless to say, those incentives are not mentioned to potential lenders, it’s the civilian equivalent of “don’t ask, don’t tell”.) In addition they also have to reduce the asking price to get that apartment rented which is why the 7-10% drop is a bit dubious.
Based on what I’m experiencing, I’d say that rents are down 10 to perhaps as high as 20% from their peaks. Keep in mind that rent stabilisation and rent control the two programs we have in place on Moscow by the Hudson, distort the figures somewhat as tenants who have been in an apartment for many years may have still-below market rents and those will continue to climb but obviously that shouldn’t be taken as evidence that rents are firm.
New York, NY
Read more Mish here >
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