Category Archives: What The Locals Know

By Jan Leasure
Along with the tight real estate sales market, an equally tight rental market has emerged.    There are more tenants in the market today, as homeowners have sold their homes (either short-sale or otherwise), as some who over-extended themselves have faced foreclosure, and as the twenty- and thirty-somethings elect not to become homeowners at all.  Few homes are available to accommodate these swollen tenant ranks.

When the supply of rentals becomes as tight as it is today, there are nowhere for prices to go but up.  Rental prices had stagnated for a number of years, starting with the housing boom years of 2000 – 2005.  As the mortgage industry made it easier and easier to purchase a home, tenants filed out of the rental market en masse.  That left a plentiful supply of rental properties for those who still failed to qualify to buy a home or otherwise elected not to.  When the real estate sales bubble burst, that trend reversed itself.  The rental market began to tighten as homeowners became tenants, and today, we have the tightest market we have seen in many years.

What is the likely result?  The rental market will continue to squeeze tenants for higher and higher prices until it gets to the point whereby the tenant market will support no more escalation.  Unlike the sales market, in which there seems to be no ceiling to prices that the market will bear, the rental market has its limits.  Rental rates are limited by the incomes of the tenants.   The tenant market of the Monterey Peninsula is primarily made up of the military and those in the hospitality industry.  The most that most tenants will budget for housing is 35 – 45%, with a few willing to push to 50%.  Even budgeting 50% for housing, that would mean that to afford $2500 for a modest three-bedroom house, the annual income must be $60,000.  While possibly doable for a military officer, it is challenging at best for an enlisted person or a hospitality worker.  So while there are limits to the heights to which rents will climb, this is still a great time to be a landlord!