Wednesday, January 16, 2008
housing rental rates deflating
simply put, there are now too many houses in the united states. builders capitalized on what seemed to be (and, for a while, was) a money machine by sinking unprecedented amount of capital in comparison to GDP into residential investment and building an incredible number of residences -- significantly more than can be occupied.
and so oversupply in american housing is likely to lead to a general deflation of housing costs. cnn noted exactly that effect took hold in 2007, as rent declined in real terms.
According to data from Investment Instruments Corp. generated by their Rentometer.com site and supplied the data exclusively to CNNMoney, the median monthly rental bill for a sampling of 10 metro areas all around the United States rose just 0.5 percent in 2007 from $1,457 to $1,465.
this makes sense, with rental vacanciy rates near all-time highs just as homeowner vacancy rates are. and in comparison to a 2007 CPI of 4.2%, one can see that real housing rents are deflating alongside real (and nominal) house prices.
i've long considered that the housing bust will likely be "over" when prices fall back into line with their approximate historical relationships to equivalent rents and to incomes. that would have been a difficult adjustment if inflation and employment had been maintained. but place a deflationary credit contraction in the context of significant malinvestment/oversupply and declining employment ratio, and the floor seems much further away -- and the return of hardship all the more probable.
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