Rental Market Bubble?

If you or someone you know are looking for a rental, you'll find that it is competitive and expensive. Many renters are beginning to think they might as well buy because buying might be cheaper than renting.

Being tied to an asset that might be devalued has driven many to rent instead of buy. Plus, with the supply of new homes on the market outstripped by demand, renting appears to offer more flexibility and immediate gratification. As my information below suggests, not so fast!

Rents are sky high and climbing. Rents around the Bay Area are the least affordable in the country. The most expensive counties are San Francisco, Marin and San Mateo.

Over the last 4 years, rental prices have climbed 13.7 percent in San Francisco, while occupancy rose only 1.3 percent. At the beginning of this year, average monthly rent in San Francisco County was $2,585.00.

In late 2011, apartments in Marin were more expensive than they had been in 6 years, with the average rent in Marin County up to $1,903, a 10 percent increase over 2010.

Lack of inventory both for sale and for rent are fueling higher prices: Supply and Demand. Waiting lists, climbing rents and increased competition for available units are driving this so called feeding frenzy. Applicants are willing to bid up the monthly rate just to nab a place before it hits the market.

The same thing is happening in the residential market. I recently listed a home in Mill Valley and one buyer came through and made an offer over asking to keep it off the open market. Of course, this can cut both ways, but the reality is, with fewer homes on the market and inventory low, this is what is happening.

The market is waiting for the Dot-Commers, too. It is anticipated that once Facebook goes public, there will be more competition in both markets. This potential influx of cash could drive prices higher in both markets. Many of these soon to be millionaires may not be ready to put down roots, so they may look to the rental market.

Should you rent or buy? Would-be renters who haven’t been able to find reasonable rent have the usual options – split the rent with a roommate, move further away from the priciest areas, look for alternatives such as renting a room instead of a full unit.

Naturally, the other option is to buy. That may work in some parts of the country but, you guessed it, San Francisco and Honolulu top the most expensive list. If you rent a 1,350-square-foot home for $3,300 a month, you could buy, with 20 percent down, a 1,600 SF home for $3,197.00 a month. Assuming this: 5/1 adjustable rate at 2.75 percent with 20 percent down and does not include taxes and insurance.