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Rental Market Leads Sales Market

Ok, so I have long said that sales lead housing prices, but what about rents?

The rental market leads the sales market. Its pretty logical since rents respond more quickly to employment trends than the sales market and employment is the key to economic recovery.

In an interesting CNN/Money/Fortune piece [1], which focuses on Deutsche Bank reports (which I can’t find yet)

…steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease. That’s a golden mean that America hasn’t seen in almost a decade. The DB research also offers convincing evidence that the wrenching adjustment in housing prices is finished for much of the nation, with a bit more pain to come in selected areas.

They address the rent v. buy ratio which was:

In 2009, apartment rents dropped 2.3%, and the fall continues. And enormous adjustments are needed in still-exorbitant markets such as New York and Baltimore. Thankfully, the improving economy and decline in the rate of job losses means that rents should soon stabilize and could even start increasing by the end of 2010.

Frankly, a national decline in rents of 2.3% seems to understate the weakness of the rental market since the vacancy rate hit its highest level [2] in 30 years at the end of 2009.

In New York City, the vacancy rate improved by 0.1 percentage point for the second straight quarter, but around 60% of rental buildings dropped their rents in the fourth quarter from the previous quarter. Effective rents — which include concessions such as one month of free rent — fell 5.6% in New York last year, the worst since Reis began tracking the data in 1990.