This article makes nearly no mention of the foreclosure rate, which is at quite an uncomfortable level.
Below the MSN story, I've included one from Consumer Reports. A much more edifying analysis on the housing market.
Home Sweet Extortionists Home
Peaceness and Sledgehammers,
The 20 most expensive cities for renters
With a weaker jobs picture and cheap mortgages inspiring home purchases, the rental market's been in a slump. In some places, though, you'd never know it. $17,000 a month for a two-bedroom?
More from MSN Money and Forbes
* Slideshow: The most expensive rental markets in America
* What it costs to live well in the U.S
* Most overpriced places in the U.S. 2005
* MSN Real Estate: See what rents are like in your town
* Could you afford to buy instead? See what rates are like
Lately, all of the real estate talk has been about buying, selling and prices that keep going up, up, up.
Conventional wisdom has it that it makes more sense to put your money into equity than into rent, to take a tax break on a mortgage than to line a landlord's pockets. But a substantial portion of the American population -- about 30%, according to the U.S. Census Bureau -- still rents its housing.
Some renters don't have a nest egg for a down payment or are reluctant to make a real estate commitment. In general, renters -- especially apartment dwellers -- tend to be less affluent than people who own houses.
But that's certainly not always the case. In some of the most expensive rental markets in the country, wealthy residents are willing to pay thousands of dollars per month for their apartments.
Dennis R. Hughes, a senior vice president at The Corcoran Group, a division of Cendant, in New York City, recently showed a two-bedroom apartment in the Beekman neighborhood that has a library, sterling silver faucets and 24-karat-gold hardware. It is priced at $17,000 -- per month.
"Not extraordinary at all," is how Hughes, whose rental listings currently range from $4,300 to a startling $27,000 per month, describes the rarity of such prices.
One of his clients, a high-powered businessman, offered to prepay two years of rent -- in cash -- for a place that cost $18,000 per month -- a total of more than $432,000. That made the owner think the place was underpriced, and the deal was called off.
"The luxury end of the market is going very nicely, very strong," Hughes says. "I love this market."
The 20 most expensive places to rent
Rank City $/sq. ft*
1 New York $26.04
2 Boston $24.33
3 Honolulu $23.27
4 San Francisco $22.48
5 N. New Jersey $22.35
6 Stamford, Conn. $21.76
7 Nassau-Suffolk, N.Y. $21.05
8 Los Angeles $20.34
9 San Jose, Calif. $20.23
10 Orange County, Calif. $19.54
11 San Diego $19.19
12 Oakland, Calif. $17.66
13 Washington, D.C. $17.54
14 Central New Jersey $16.54
15 Philadelphia $15.40
16 Riverside-San Bernardino, Calif. $14.81
17 Baltimore $13.91
18 Chicago $13.57
19 Miami $13.49
20 Sacramento, Calif. $13.16
Source: National Real Estate Index *Price for ‘Class A’ apartment, top quality buildings maintained well
Pockets of strength in a slow market
"Strong" isn't the first word that many industry insiders would use to describe the nationwide rental market over the past several years. "Since the recession of 2001, the apartment industry has recovered rather slowly," says Mark Obrinsky, chief economist for the National Multi Housing Council, a trade group based in Washington, D.C.
Although the recession officially ended in November of that year, demand for apartments kept dropping for months, even years, Obrinsky says. Vacancy rates only recently came back to the long-term national average of about 5%. And the rentals market hasn't been helped by exceptionally strong real estate sales.
"We had fewer people coming into apartments because of the job market, but the same number of people leaving (to buy homes)," he says.
But the rentals market, like the overall real estate market, varies greatly from region to region and neighborhood to neighborhood. Even in a down apartment market, some cities remained extremely expensive.
To discern the priciest rental markets in the U.S. today, we turned to San Francisco-based real estate research firm Global Real Analytics, which publishes the National Real Estate Index. The company collects rent information for studio through three-bedroom units in apartment complexes around the country and provided its most recent data on the metropolitan areas with the highest annual rents per square foot.
The usual suspects
Not surprisingly, most of the places that made the top 20 are also those with very high sales prices.
New York topped the list, with an average price of more than $26 per square foot each year for high-end apartments, in the second quarter of 2005. That's almost twice the national average of $14.53 per square foot. According to the latest data from local real estate brokerage Citi Habitats, the median rent in Manhattan for a studio apartment is nearly $1,700 per month. Looking for a little more space? Then crank your budget up to about $3,000 per month for an average two-bedroom pad.
Our list was dominated by California metro areas, from San Francisco to Los Angeles to Sacramento, and by long-established cities, such as Boston, Washington, D.C., Miami and even Honolulu.
"There are very few housing units available," says Cheryl Kunimoto, president of Marie Hansen Properties in Honolulu, where the average annual rent per square foot is $23.27 for a high-end spread. "If you have a property that is competitively priced, it's not unusual to have ten or more prospective renters."
What makes these markets so pricey? The reasons vary. Metro areas, such as San Francisco, New York and Boston, not only remain desirable to live in, but they are also known in the industry as "barrier-to-entry" cities, Obrinsky says.
"In other words, even though there's demand for a lot more housing units, it's tough to get them built," he explains.
In Manhattan, land is limited and mostly already occupied. In Boston, until recently rent control discouraged new building. And because there are so many historic areas, it takes a relatively long time to get a new building permit.
And then there's California.
"It isn't the fact of being in California per se, but it is those locations in California," Obrinsky says. "San Francisco, Berkeley, Oakland is a bay. There's only so much space that's on and near the bay. Farther inland, it's not cheap housing, but it's less expensive than San Francisco."
Demand, of course, also plays a role in pricing. "There are more companies relocating new employees into the area, and that has had an effect on the rental market," says Edward Bate, a real estate agent with American Marketing Systems, in San Francisco.
Why rent at all?
So if prices are so high in these places, why rent if you can afford to buy? Tenants have some very good reasons, from wanting the money to work for them in other investments to thinking real estate prices are going to decline. Some are frustrated by the pace -- and the even higher prices--in the housing market.
"Something comes on the market, and it's not the asking price, it's the starting price," says Deacon Hoy of Citi Habitats in Manhattan. "Suddenly you have 20 people bidding on it. People come here thinking they are going to buy something for $600,000 or $700,000. They're finding that what they had in mind is going for $1.2 million."
And in many cases, real estate prices have climbed so high that they can have a better standard of living as a renter. "A lot of people have purchased property, but I find that a lot of people end up renting, because they've been priced out of the housing market," says Marie Hansen Properties' Kunimoto. "They can get more for their money if they rent. They can afford to live in a $1 million home, but they can't buy a $1 million home."
Edward Bate observes that in San Francisco, people who have been priced out of the most popular neighborhoods are buying in outlying areas, such as the Sunset and Richmond Districts. That is driving up purchase prices, but rents are still lagging a little behind -- a potential bargain if you're looking to rent.
Then again, when you're talking about the most expensive rental markets in the country, a bargain is defined in relative terms.
Sara Clemence, Forbes.com
--------------Consumer Reports article---------------
High Foreclosure Rates the Dark Side of a Hot Real-Estate Market
By James R. Hood
June 8, 2005
Whether there is a housing "bubble" is becoming as popular a topic of conversation as how much the house down the block sold for. But beneath all the froth is an ominous undertow -- high foreclosure rates in some of the country's hottest markets.
• Mortgage Rates Edge Higher
• Greenspan "Certain" Some Housing Prices Will Dip
• Mortgage Rates at Lowest Point Since February
• High Foreclosure Rates the Dark Side of a Hot Real-Estate Market
• Consumer Complaints/Info
The number of new properties in foreclosure increased nationwide for the second month in a row, with 64,057 in April compared to 62,422 in March, although the rate eased off somewhat in May, possibly indicating the March increase was a temporary spike.
According to data released today by online foreclosure listing service, Foreclosure.com, 22,734 new foreclosed residential properties were listed for sale in the U.S. during May 2005. The number represents a decrease of 17 percent from April 2005. The total number of U.S. residential foreclosure properties available for sale in the U.S. during the month of May was 74,011, a decrease of nearly 4 percent from March.
In Florida, which had the highest rate of foreclosure in the previous two months -- there was one property in foreclosure for every 719 households. Texas is close behind. Both states' foreclosure rates were more than 2.5 times the national average.
"April continues a trend we've seen over the last few months where Texas and Florida have consistently produced an above average number of properties in some stage of foreclosure," said James J. Saccacio, chief executive officer of RealtyTrac.com.
The rising foreclosure rate in Texas, Florida and other prime real estate country may be the early warning signs of an implosion, or they may be just a blip. But whatever the big picture turns out to be, any foreclosure is an unmitigated tragedy for the family that loses its home.
In Texas, homeowners are fighting back. Class action lawsuits against Ameriquest, Option One, Washington Mutual and Long Beach Mortgage allege that their adjustable rate home equity loans written between 1998 and 2003 violate a critical provision of the Texas Constitution.
The Texan homeowners aren't the only ones who are irate about their variable-rate mortgages. Economists are worried too.
Not long ago, the typical homebuyer took out a fixed-rate, 30-year mortgage. Everyone knew upfront what the payments would be and lenders conducted reasonable due diligence to ensure the borrower would be able to pay.
Such staid financing instruments have come to seem as old-fashioned as an oboe. Today as many as two-thirds of home buyers are taking out variable rate mortgages, gambling that interest rates won't rise faster than their ability to pay.
Lenders, meanwhile, are rushing to write paper for nearly anyone who has a pen with which to sign on the dotted line. "No document mortgages" -- which are based largely on the value of the property rather than the borrower's credit worthiness -- have been at record levels. Even headier are the interest-only mortgages that are allowing eager buyers to snap up property they could otherwise not afford.
Of course, interest-only means you never pay off your house. In fact, you don't even make a dent in the original debt and therefore don't build any equity except for that which results from prices that rise faster than the interest rate. While that may be happening now, there's no guarantee it will continue.
"Foreclosure inventory in 2005 has reflected the current volatility and geographic variations of the overall housing market. The tendency for homeowners to enter into adjustable-rate mortgages, no-down payment loans and other low initial cost loan options has resulted in an atmosphere where slight changes in interest rates or economic conditions have a dramatic effect on ownership," said Brad Geisen, president and CEO, Foreclosure.com.
"In areas of the country where the housing market is strong, homeowners facing foreclosure are still able to sell their home to pay their mortgage. But, in areas of the country where the market is flat or slipping, homeowners are left with very few options and foreclosure inventory remains high," he said.
The national median existing-home price for all housing types is expected to rise 8.8 percent in 2005 to $201,500, while the typical new-home price should increase 5.7 percent to $233,600. A rising tide of this sort might continue to lift all boats, but national averages can be misleading and a house that might increase 100 percent in value in a decade in San Francisco might very well show no increase or even a loss in Detroit, St. Louis or other markets that have lost a lot of high-paying jobs.
Home Equity Loans
As troubling as the new styles of financing is the willingness of homeowners who have built up equity in their homes to borrow against that equity, putting their home at risk to pay off credit cards, put their kids through college or go on an extended vacation. Economy.com estimates that Americans borrowed some $705 billion against their homes last year, up from $266 billion in 1999.
Many consumers who've borrowed against their homes were enticed by low interest rates and tax provisions that, in some cases, allowed them to deduct the cost of the loan from their income tax.
What consumers sometimes didn't consider carefully was what would happen if they were unable to pay the loan back. If a consumer falls behind on a car loan, the car may be repossessed. A bad credit card debt can bring annoying collection efforts and damage to one's credit rating. But fall behind on your home equity loan and you can lose your house.
As the foreclosure rate demonstrates, this is not a theoretical problem. But it's not fair to put all the blame on consumers -- lenders have been very aggressive in making loans without pointing out the risk and, often, without adequately vetting the borrower's ability to make the payments.
"No one is doing serious due diligence and underwriting," Diane Thompson, a housing and consumer unit attorney with Land of Lincoln Legal Assistance Foundation Inc. in East St. Louis, told the Belleville News-Democrat recently. "There is not documentation to support income or assets. Clients are never offered a choice."
Thompson said this has forced the foreclosure rate in St. Clair County to more than double in the past decade. Most of the loans that have gone bad are what the industry calls "subprime."
Subprime loans are those issued at a higher than standard interest rate to those whose credit rating prohibits them from otherwise securing a home loan. With interest rates ranging between 5 percent and 6 percent in recent years, subprime rates can reach as high as 12 percent.
Thompson said she has seen cases where subprime rates topped 20 percent. She blames Wall Street for the problem.
Clients are being pushed into these loans because of the demand for income from Wall Street, she said. Brokerage houses are making a lot of capital available for high-interest loans and are using "push marketing" tactics.
"It's extremely profitable," Thompson said. "Most of my clients were not actively shopping for homes for refinancing. They don't shop around. They don't know of those that are around, and they get steered to disadvantaged loans."
On the other hand, there are parts of the country -- like Los Angeles -- where foreclosures are not much of a problem. During April, Los Angeles County had the lowest foreclosure rate of the nation's top five metropolitan areas, according to RealtyTrac.com.
Credit the price of housing, which continues to climb, though not at the super-heated pace of a year ago. Houses are so expensive that: a.) low- and middle-income homeowners are rare; and b.) anyone who gets into financial trouble often can quickly sell their home, probably at a profit.