Are rental rates going down with the decrease in home values? (Anchorage: low income, real estate market)

[quakinator]

I have a question about something that just seems odd to me. I know home prices in the Anchorage/Wasilla areas haven't been hit nearly as much as in many areas of the lower 48. Home values have dipped some in the last 6-12 months though and it seems as if rental rates are staying about the same. Has anyone noticed rental prices going down too? or will there need to be a bigger slide in home values before rental prices start to dip? I initially intend on renting, but it seems that renting a decent place is going to be more expensive than getting a mortgage pretty soon(assuming housing prices continue to slide as predicted).

[Marty Van Diest]

Rental Prices have not dropped by much in the Wasilla-Palmer area. I believe you can still rent for much less than your mortgage would be. That is especially true in the higher prices. A $300,000 dollar home rents for almost 2/3s of what it's mortgage payment would be.

[RayinAK]

At least in the interior of Alaska, rent cost remains the same. All products at the store (construction products, food, clothing, etc.) cost more now than previous years. For example, food costs around 25% to 30% more than two years ago.

[JavaPhil]

The problem is that the mortgage payments on homes for rent are not decreasing with the concurrent loss in value. Gotta keep up the payments to the banks so that they can lose more money in bad loans.

[Chilkoot]

I read an article recently that indicated that rental rates may actually increase since banks are making it more difficult for individuals to obtain mortgage loans. This forces more people to rent which drives the rental market prices up.

[AKNana]

I wouldn't expect a decrease in rental prices. If fewer people are buying houses, then more would be renting, increasing the demand for rentals. Supply and demand would keep prices up. And you're correct, home values have not fallen much in Alaska in general, and have held steady in Anchorage, as our economy is different from the lower 48. Alaska actually added jobs in 2008, although a small loss of about 200 jobs is predicted for 2009.

[quakinator]

Originally Posted by Marty Van Diest

Rental Prices have not dropped by much in the Wasilla-Palmer area. I believe you can still rent for much less than your mortgage would be. That is especially true in the higher prices. A $300,000 dollar home rents for almost 2/3s of what it's mortgage payment would be.

I have been searching craigslist for months and I can't see the type of rentals your talking about. Using current interest rates of approx 5% a 300k home with a 10% down 270k loan would be approx $1,850 a month, putting the rental rate for a home like that around $1,200. I have very good credit and would likely qualify for a loan with terms like this. I haven't been able to find anything in the 3-4 bedroom range in the valley for $1,200. Anchorage is even worse. $1,200 gets you a 2 bedroom apt, 2-4plex, or condo in a decent part of town in Anchorage, for a 3 br single fam. residence (~$300k) you're looking probably more around $2,000 a month rent.

The problem is that the mortgage payments on homes for rent are not decreasing with the concurrent loss in value. Gotta keep up the payments to the banks so that they can lose more money in bad loans.

I understand that people who are currently in mortgages aren't going to see their rates go down, what I'm referring to is the comparative advantage to renting seems to be very miniscule in Alaska compared to other real estate markets. Likely one of the reasons that your home prices haven't fallen so far is because it's not much cheaper to rent. In markets where rentals are 2/3 the price of a similar mortgage it makes sense to get foreclosed if you can't make it and rent to save 33%. In Alaska from what I can tell there really isn't an advantage to renting aside from not being in charge of maintenance fees (also, unlike a lot of other markets, a lot of cases in Alaska renting does include gas, water, sewer etc...).

Here are a few ~$300k houses for rent:
$1975/mo Beautifully Remodeled Home for Rent (http://anchorage.craigslist.org/apa/1034175317.html - broken link)
$2100/mo A huge 3 bedroom in Gov't Hill (http://anchorage.craigslist.org/apa/1032046837.html - broken link)
$3000/mo Eagle River Large Single Family Home (http://anchorage.craigslist.org/apa/1031462396.html - broken link)

Here's what ~$1200 gets you:
2nd level of a 6-plex Anchorage-Mid Town (http://anchorage.craigslist.org/apa/1033891284.html - broken link)
950 sq. ft. 3 bedroom in a 6-plex Remodeled Sunny Upstairs 3BR/1BA in Quiet Jewel Lake 6-plex (http://anchorage.craigslist.org/apa/1032590187.html - broken link)


Are there other places to look Marty? To me it just seems that almost everything on craigslist rents for almost exactly what it would cost to take out a mortgage on it. About once every 2-3 weeks I see a really well priced rental.

[Marty Van Diest]

Quakinator,

You brought up an issue about which I perhaps spoke too quickly. I answered from my knowledge of the rental market the last time I did a study which was almost a year ago. That was when interest rates were much higher. The only payment cost you appear to be leaving off of your mortgage cost is home insurance which would run between 80-100 per month.

I don't deal in rentals but exclusively with sales. For the rental market I always call Charlene Moss. She has over 400 units under management in the Wasilla-Palmer area and knows the rental market well. Her website is charlenemoss.com. I took a look at her site and at craigslist and I have to agree with you, monthly rents are not that much less than monthly mortgage payments.

There still are a several reasons you would rent rather than buy. 1. You need to be mobile and do not want to be tied into a mortgage. 2. You don't have 10% to put down. 3. You don't have good enough credit or income to qualify.

This situation is a more normal situation when the rental costs are close to mortgage payments. When there is a large disparity between the two, you can bet you are in an inflated real estate market. Several studies accurately predicted the crash of real estate values in Florida, California, Arizona and Nevada based partly on the large difference between the cost of rents VS buying. People were buying not so much because they needed shelter but because they thought they would make money. That is part of what creates a bubble.

There are a few other factors involved in predicting future house prices but the rent/mortgage difference is one of the most important. There was a period of time in the early 90s when we could get a low income buyer into a house for less down, and less per month, than they would pay for rent of the same house.

[quakinator]

Thanks for all the replies. I found an interesting calculator that I thought some might be interested in looking at.

http://www.nytimes.com/2007/04/10/bu...T_GRAPHIC.html

[nddomer]

I had put together a spreadsheet with some of those variables, but that site is awesome and has a few that I hadn't thought of.

I'm in the same boat. I'm getting ready to get a job offer in Fairbanks and will have to make the buy vs. rent decision if it all works out. The cost of housing (mortgage/rent, utilities, taxes, etc) is a big factor in my decision making process. Once I get the offer I'll talk with some local realtors to see how the market is. While prices don't seem to be dropping, I wonder how houses that are listed are moving. I had to unload a house that I had put 50k into and took a bath during Sept of 07.

I found this site in my research. It has a lot of good annual census type data for the Fairbanks area. http://www.co.fairbanks.ak.us/Commun...RC/Default.htm