"Landlords Have the Upper Hand. No, Renters Do"

So Which Is It?

One side effect of a market flooded with both sales and rentals is that renters are gaining clout when it comes to negotiating, just as buyers have.

--"As Sales Slump, Rental Stock Rises"; The New York Times (9/25/2010)

To the chagrin of many renters . . . the balance of power in the rental market has tipped back toward landlords — if not far enough for landlords to start celebrating quite yet.

--"Landlords Are Back in Control"; The New York Times (9/25/2010)

Want evidence that "all real estate is local?"

Look no further than the real estate section of today's New York Times.

The lead story proclaims that the rental market has surprisingly tightened, giving landlords more leverage; scarcely an inch further down the page (I get 99% of my news online), the same newspaper(less?) observes that the "rental market is flooded."

The explanation?

One article is discussing Manhattan, the other residential New Jersey.

P.S.: Variability in market demand by area and even neighborhood characterizes the Twin Cities, too.

"How much does that home rent for?"

How to Predict (House) Rental Rates

Want to know the best predictor of what a given home rents for?

Figure out when the owner bought.

If they bought between 2004 and 2008 -- especially if they didn't put much down -- they want an arm and a leg.

Or more accurately, they need an arm a leg.

That's because they bought at the peak.

And since they bought at the peak with little down, they're now underwater.

Which means they can't refinance to take advantage of today's shockingly low rates.

So, to cover their monthly "nut," they need to collect a hefty monthly rent check.

Financial Wherewithal + Patience

At the other extreme, there are other would-be "home landlords" who bought decades ago, and now owe little or nothing on their homes.

Some are earning essentially zero on their retirement savings (remember those shockingly low rates); others are convinced that the market will be higher in 2-3 years than it is now.

In either case, they're looking for a renter to tide them over till the markets -- investing and housing -- improve.

Throw in a renter who might be a family friend (or a friend of a family friend), and suddenly such homes can be rented at very attractive prices.

So, what are market rental rates?

Somewhere between these two extremes.

The Buy-Versus-Rent Question

Calculating the "Rent Ratio"

Sometimes, the decision whether to buy a home or not seems to require an economics Ph.d.

Are interest rates headed higher? How strong is the economy? Are home prices now recovering, or will there be a "double-dip?"

It's enough to make your head spin -- or hurt.

If the foregoing (unanswerable, by the way) questions seem too daunting, try this one instead:

Can I rent a nicer place for less money than it costs to buy?

In many cities, including Minneapolis, the answer is now "no."

Check out this NYT piece, "In Sour Home Market, Buying Often Now Beats Renting," for the particulars.

Warning: you'll need to divide by 20 to calculate the local "rent ratio" -- the best yardstick for gauging whether buying is a better deal than renting.

If you need help filling in the numerator and denominator . . . . call me! (612-925-7701)