Housing Glut Causes Rents to Fall

PE.com reports:

Unable or unwilling to sell their homes at declining prices, homeowners in Riverside and San Bernardino counties are converting them to rentals, glutting the market and causing rents to fall for the first time in years, according to Inland property managers.

Among the new landlords are investors who bought houses at peak prices and have watched their equity evaporate or homeowners who have relocated, leaving behind a house they can't sell.

There are so many Inland homes for sale, that even if no more come on the market, it will take more than two years to sell the houses available, according to the California Association of Realtors.


"People who can't sell their homes have two choices," said John Denver, owner of Perris-based John Denver Realty. "They can stop payments and let them go back to the bank or rent them out."

Most will take a financial loss as landlords, he said, because the monthly mortgage payments are greater than the rent they can get. Bill Santoro, owner of 1st Rate Rentals, a rental management company with properties throughout most of Riverside County, said the monthly shortfall averages $500. Denver said he is seeing some landlords taking monthly losses of as much as $1,000.

"It is a good time to be a renter and a lousy time to become a landlord," said Denver. He said in the past six months, the average time it takes to rent out a house in Perris has lengthened from two or three weeks to two months. Rents have fallen about 5 percent. He said the average monthly rent has slipped to $1,100 in Perris.

Denver said today a $300,000 house purchased with a 7 percent down payment would likely require a monthly mortgage payment of $2,500. The same house, he said, can be rented for $1,300 a month, "and the owner has to do the repairs."

Neither the multiple listing services nor California Association of Realtors track houses for rent. However, throughout the two-county region most property managers said they see a marked increase in for-rent listings. Lance Martin, broker-owner of Coldwell Banker Pioneer Real Estate in Moreno Valley, said his single-family home rental business has increased about 30 percent in six months and he estimated it could double in another year.

In the first six months of 2007, for-rent classified ads in The Press-Enterprise took up 35 percent more space than in the first half of 2006, said sales manager Lauree Sierra. Heidi Burns, real estate broker at GMAC Real Estate in Rancho Cucamonga, said the rental market is suffering from oversupply throughout the Inland Empire and most of Southern California.

A dangerous situation for landlords: having to put out money every month because the rent doesn't cover the costs.