Here’s yet another angle on why Home prices haven’t bottomed yet: Falling Rents.  Rental units are competition for home purchases, especially at the all important entry level.

The Sunday NYT notes that some rentals are being negotiated 20% lower than asking price:

“Although it is notoriously difficult to quantify the state of the rental market, rents fell in almost every sector of the Manhattan market last year, according to the Real Estate Group, a New York brokerage. The steepest drop was in one-bedrooms, down 5.7 percent in buildings with doormen and 6.53 percent in buildings without. The only category that rose: rents for two-bedroom apartments in doorman buildings, up just a bit, by 0.61 percent. But these numbers, like most available data, represent asking rents rather than the final price. Anecdotal evidence suggests that some people are negotiating rents as much as 20 percent lower than the original prices asked by landlords. These figures also leave out incentives, like a month of free rent or a landlord’s paying the broker fee, which can add up to real savings.

Fritz Frigan, executive director of sales and leasing at Halstead Property estimates that when these incentives are considered, rents are actually down some 10 percent to 15 percent since the market peak in mid-2007.

“In that really strong market,” Mr. Frigan said, “landlords didn’t have to do anything.” In 2008, that was no longer the case.

In January 2008, Halstead had about 90 listings for which the owner offered to pay the broker’s fee. By the summer, that number had pushed upward, hitting about 450 a month.

“Then, in September or October, the whole thing broke loose,” Mr. Frigan said.

In a one-month period, from Dec. 23, 2008, to Jan. 23, 2009, some 1,700 of Halstead’s 9,000 total rental listings included owner payment of the broker’s fee.”

That’s Manhattan, which is greatly impacted by Wall Street. The IBO of New York City expects to see job losses of 243,000 jobs from the peak of early 2008.

How are rents doing in the rest of the country . . . ?


A Month Free? Rents Are Falling Fast
NYT, January 30, 2009

Category: Employment, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

48 Responses to “Falling Rents”

  1. globaleyes says:

    RENT: most forclosed homes are empty, right?
    That should put upward pressure on rents, right?
    More people, fewer houses = higher rents, right?

  2. mitchn says:


    In metro areas where foreclosures are a problem, yes. Foreclosures not yet a problem in NYC.

  3. Chief Tomahawk says:

    BR, I think it’s too early here for the Midwest. No doubt Manhattanites, many at ground zero for Bear Stearns’ & Lehman’s blowups, are experiencing first what will spread it’s way to the rest of the country (i.e., it may be a tsunami when it arrives in Chicago, St. Louis, Indianapolis, Milwaukee, etc., but residents here haven’t seen their everyday income evaporate yet, just dwindle).

  4. gorobei says:

    Damn, I just agreed to a 1.3% increase.

    Then again, what’s the going rate for an UWS classic 7?

  5. sinful mistress says:

    It would seem that rents would rise. People who have been foreclosed have inadequate credit ratings to purchase and must rent, ergo making rentals a premium. What do I not understand??

  6. asiankida says:

    i don’t think foreclosures are a problem in Manhattan (yet). rental demand’s moved out of Manhattan in recent years because supply was so tight so there’s a bit of a disconnect right now.

  7. Mannwich says:

    @sinful mistress: Too much supply of homes (often 2nd, 3rd homes that owners had planned to “flip”) are available now for rent, so it drives down rents. Called “shadow inventory”. Supply of homes to rent has therefore increased, pushing down rents.

  8. Mannwich says:

    @asiankida: The key word there is “yet”. Bankers are/were still living off of prior bonus $$. Once they burn through that, it’s going to get fugly in NYC quickly. No market is immune in this environment. NYC may end up feeling it the worst before this is done and probably should feel it the worst since they’re the epi-center of this crisis.

  9. Winston Munn says:

    When the economic system is reliant upon debt expansion and instead debt contracts there is no inconsistency with falling prices – that is deflation. Rent demand is still falling faster than rent supply.

    Friedman was only partially correct when he said that inflation (or deflation) was always a monetary event. What he left out was the fact that our money supply is based on debt, so the monetary event is in actuality a debt event. Debt that cannot be serviced has no value – and any money backed by that debt is worthless.

    So debt destruction is in a very real sense a monetary event. When debt destruction oupaces debt creation it causes a drop in general demand. And with falling prices, what is the rush to take on new debt to purchase when tomorrow the price will be lower still?

  10. TrickStyle says:

    Coincidentally, I was just surfing craigslist surprised at the bargains in San Francisco.

    Here’s what I think is going on in San Francisco…

    Every month some portion of the rental market in SF re-signs their lease.

    This month, people who lost a job are moving out of their expensive apartment (and even the expensive city). They can’t afford to take on the 12 month lease, because they don’t have jobs.

    The rental market here is getting softer.

    To sinful mistress’s point, I think there are lots of different dynamics going on – her conclusion makes sense too, suggesting lots of things going on out there.

  11. Mannwich says:

    I’ll also mention that more people are likely moving in together (and back with their parents), doubling/tripling up due to deteriorating finances. That decreases demand further. The only things that don’t seem to be deflating right now are food and health care, although I would surmise that health care is going to get theirs soon enough as people cut back.

  12. BlankReg says:

    Unchanged demand for living space (or probably reduced demand because people are willing to reduce the square footage that they inhabit per capita)
    Increased supply of living spaces (spec homes, condo developments, etc., built not to meet increased demand but to sell to the greater fool)
    Decreased sale values of living spaces
    Decreased demand for luxury living spaces (results in an overall decrease in rents per sq. ft.)
    Decreased rents

    I saw my rent increase by 35% from 2004-2008 (same unit). So the ability of everyone to buy real estate on credit did NOT result in a decrease in rent for me.

    The dynamic that sinful mistress references is real, I think, but is resulting only in a lower “cost-of-buy vs. cost-of-rent ratio”, not an increase in the cost of *anything* in absolute terms. And, of course, that ratio got *extremely* high during the run-up.


  13. Mannwich says:

    I’ll add this anecdote about debt: I stupidly got myself into some bad debt (probably $25-$30K in cc debt) in my 20′s. I slowly dug myself out about 5-6 years ago and vowed to never go back to debt slavery (although I do have a mortgage and car payment, car payment gone in a year). It was a highly traumatic event for me and I have not gone back (nor do I plan to no matter how bad things get). I’m guessing the U.S. is now going through that trauma on a macro scale and that attitudes toward debt will have changed for a generation or more when all is said and done, which means more deflation. The feds can’t make people borrow again. The cat is out of the bag or the wizard’s naked corpse behind the curtain has been revealed for the massive fraud that he is and we ain’t going back there any time soon.

  14. BlankReg says:

    Winston Munn 4:50:
    Excellent explanation, as always.

  15. BlankReg says:


    I had the exact same experience in my 20′s. Paid it off.
    Stayed debt-free.
    May 2008, borrowed $30K from CCs to start a business.
    Talk about timing.
    Got hammered.
    Back to the end of the line…..

    I imagine many others are in bad situations now as well…


  16. Groundhogday says:

    Rents in Bozeman, MT have fallen 25% (list) with vacancy rates increasing monthly. So much for the second home, resort towns where “everyone wants to live.”

  17. Winston Munn says:

    We are still feeling the influence of the Greenspan legacy – and let us never forget that Ben Bernanke served as governor under Greenspan.

    We are trapped in a wage-productivity gap and the necessary correction will be long and painful.

    In a healthy economy, productivity (supply) equates roughly to real wages (demand). Unfortunately, Greenspan believed that new debt could be used to replace increases in real wages, and this mumbo jumbo approach to wealth creation was bought and put into practice by Reagan, Bush, and others, and therefore the productivity gains of the past couple of decades were redirected away from real wage earners and back to corporations and the wealthy. Trouble is this approach can actually work and look good – for a time. And then it all falls apart.

    And now our time is up. The gap between supply (productivity) and demand (real wages) has to close. There is no other way to effect a change. Prices must come down or wages must go up – debt as a substitute for wage growth cannot last and now hopefully the idea that it can is as discredited as the idea to start a Dick Cheney Charm School.

  18. Winston Munn says:


    Thank you. I never know how to respond to a compliment. I hate to use the space on Barry’s blog but at the same time I sincerely appreciate the fact that someone has found my words of value to them.

    But please keep in mind that I only claim to be a critical thinker – and as such only express conclusions I have reached.

  19. sinful mistress says:

    @winston munn, et. al.
    When it comes to this supply/demand stuff, one needs to remember, people have to live somewhere. This is in regard that people will wait out until a better price is available. Sounds good on paper, but is it realistic. My bet as to demand would be that the population is moving out of the high/over priced areas like NYC, SanFran and the like. No job, no money, no house. “Green Acres is the place to be…Keep Manhattan just give me that countryside”. Maybe Eddie Albert was right. That’s how it is here in the mountains of NC.

  20. Winston Munn says:

    @ Sinful Mistress

    I think it is important to keep in mind the misallocation of resources that accompanied the credit bubble. We – as a nation – overbuilt housing relative to real demand (real wage growth). The reason we now have a 12.9 month supply of new homes at current sales levels is not because people are waiting to buy – it is because too many houses were built.

    I point you to the works of Ravi Batra – an early critic of Alan Greenspan who has been proven by time to have be deadly accurate:

    “Once productivity outpaces the real wage and debt fills the supply-demand gap, company profits skyrocket, because the entire fruit of rising productivity goes to capital income. However, these are debt-supported profits, because without this debt goods will be unsold and profits will fail to materialize. With rocketing profits come rocketing share prices, so everybody becomes happy and begins to dance. This is how Greenspan won the world’s adulation, and no one looked at the magical role played by debt.”

  21. mike j says:

    I’m in Central NJ. I pay $915 for a 1BR that is a desirable yet old place. I’ve been looking at the CNJ Craigslist ads for the area and am seeing rents falling by 5-10% from what they were asking a year ago. I re-signed my lease in September, previously was $895. The property management company is a large one throughout the northeast.

    Hope to ask for no increase or even decrease depending on the environment next August . . . for those of us without debt, deflation ain’t so bad (so long as you can keep a job, yeah?).

    -Mike J

  22. BostonObserver says:

    I rented my current place (Boston suburb, inside Rte 128) back in August 2006 from a flipper who was unable to sell. Got 2,000 sq ft + 2 car garage, fully renovated in a 2-family for $3,000/mo. Rent has never increased, but now I am wondering if I am paying too much. A larger, very nicely renovated single family about three blocks away just went on Craigslist for $2,500. ????? :-/

  23. Outlier says:

    Manhattan was late to peak out on real estate prices but it likely will lead the way in rent declines. Its an island of out-of-towners and when they lose their jobs they have a tendency to run home to mommy’s house in some suburb, or if not at least move to the outer boroughs where rents are even cheaper still. Add in the new inventory and all the formerly rich foreigners buying condos as investments or as a base to shop from a few times a year who now want out and you get a market ready to contract. And of course to top it off the rents were way inflated already. Worth noting that Brooklyn and Queens aren’t falling nearly as fast.

    The whole foreclosures leads to higher rents is a flawed argument from the very back of real estate agents tool chests. Occasionally used to help sell “investment” properties. Falls apart completely when you realize that the same forces that cause foreclosures also cause people to move in with their partners, sell second homes, move back home or take on roommates. It seems pretty unlikely that the increase in demand from failed home owners is going to outstrip the reduction from downgrading renters…

  24. capt dave says:

    I am commenting on the new FNM and FRE (and soon FHA) guidelines that they will allow foreclosure renters to stay, and will start the process that these GSE’s will rent their foreclosures instead of listing them in a bad market or sending them to auction. Well, I am a real landlord (not an accidental landlord from a bad investment) , and now my own taxes will be going to subsidize FNM and FRE so they can undercut me in renting out their foreclosures. As soon as people realize that FNM and FRE wont evict them for non-payment of rent either, nobody that will want to rent from me or any private landlord.
    There goes my retirement planning.
    By 2010, the Fed Government will be the biggest landlord, biggest car dealer, biggest banker and biggest employer. Glad we spent trillions to fight the Cold War to stop Communism from coming here.

  25. BostonObserver says:

    capt dave, you aren’t SWA / Eastern Shore capt dave, are you?

  26. capt dave says:

    No, Florida Keys.

  27. rww says:

    Totally, Winston. I’m afraid “productivity” has lost its meaning, too.

  28. Andrew says:

    Several different upscale apartment buildings have finished in the last year or are just finishing development right now here in downtown Oakland. One has been open for a year and is supposedly only about 30% full.

    Another is letting the first tenants move in this month and is about 30% pre-leased so far. This place is aggressively discounting in order to try for full occupancy when they open up–they’re allowing 2 months free rent (on a 14+ month lease, of course) and it looks like they have discounted rental prices somewhat. Still expensive, but it’s clear they don’t want to come up a year later with nobody inside. The questions is if prices have further to go…as someone looking for a new place, I hope they do.

    Caveat: The first place’s vacancy rate and the other place’s pre-lease rate may both be overstated, as I got these numbers chatting with an agent from the other place recently.

  29. DrSuess says:

    As a landlord- I will tell you that logic does not drive the rental rates- desire and ability to pay do. When someone is flush with cash they get the nicest place they can. When they are poorer they shack up with Mom and Dad- Uncle Bob- or whatever. My experience trying to rent my places is that as the economy weakens, the pool of good renters weakens. I am in Indianapolis- far away from the Wall Street meltdown. But in my neighborhood, I am seeing a weaker market. To keep my places rented, I am taking weaker applicants, and praying. I am also keeping rents low, and advertising more widely. Right now with streets full of snow- no one is moving who can possibly stay put. But even before the snow came the market was weak. I am seeing bargins from all the other landlords in town, and a competition for renters. When I say that people are shacking up with Uncle Bob- I am not guessing. I have several renter who have “permant” visitors- friends who have lost their jobs. I just turn a blind eye to it- and let things work out.

  30. ebal says:

    Regards the rest of the country, I’ve been renting two-bedroom apartment in Stamford CT for three years now, during which time my rent went up 11%. My lease is about to expire and when I got the renewal letter they offered me to lease for another year at the same price I am paying now. At the same time they are advertising exact same apartments on their web-site 25% lower. Yesterday I went to talk to the manager and got a new apartment, which is a larger, better situated two-bedroom in the same building at about 20% lower than my current rent.

  31. matt says:

    I live in Columbus, OH and I have story that some of you might find interesting.

    Over the past several years, the government has promoted and subsidized extensive urban residential real estate construction. A lot of these places came online late 2008 and there are still plenty of new units in the pipeline. Most of these are luxury condominiums that are waaaay over priced–I’m talking over half a million for a dinky town house in the mid-west.

    One of my friends started touring these places because he has it in his head that he can get laid more if he stops renting and gets a condo. He’s been looking at the ones in the 250k range. Noting that the real estate market is over-stocked, he pushed for a deep discount. In each case, the response was that they would rather rent than discount these places. Now, he wouldn’t give me the rental prices for all of the places that he visited, but one of the more outrageous places was a 2-bedroom brownstone next to a hospital (think helicopter constantly buzzing overhead) for 1300 per month–in friggin Ohio! What kind of idiot would pay that in Ohio?

    Anyhow, bottom line is that if this is in any way representative of cities outside of Columbus, then the reluctance of realtors to write-down/discount prices on new units in favor of offering rentals could be having the effect of increasing supply in the rental market (in addition to the new homes market).

  32. jpm says:

    When it comes to this supply/demand stuff, one needs to remember, people have to live somewhere.

    You also need to remember that “somewhere” may include doubling up in another household. “Household formation” is tracked by various sources, but not well. (Would love to hear from anybody with solid data.)

    Of course, the fact that rents are declining (precipitously in places) speaks for itself on demand/supply.

  33. Boomer says:

    I’m here in the Los Angeles area and have full MLS access, rents have just started to really breakdown over the past year. People renting were “waiting out” the housing market decline but now I think more and more people are just trying to survive. People may indeed have to live somewhere but I think increasingly that somewhere is not the LA area. We have net out migration and still too high housing prices combined with a weakening economy and credit contraction. To say nothing of all the issues the State and Local government are facing with their budgets.

  34. hoholand says:

    @groundhogday –

    Hey, there’s someone else in Bzn who reads this??

  35. pmorrisonfl says:

    Here’s our story, anecdotal evidence for falling rents. We sold our South Florida house in August 2007, and started renting. We found a place in our favorite rental community, a leafy, quiet colony of villas, 3BR/2BA/garage for $1800/month. The owner was in a fight with the board and they wouldn’t let her rent the place out, so we found another place down the street. That owner rented for $1400, a smaller sized place without a garage… at a significant discount to what it cost him to pay the 2006-vintage mortgage. He could only manage that for a year and put the place up for sale… so we found another place in ‘leafy villas’, this time at $1600/month.

    I can understand the theoretical argument that the credit-challenged foreclosed would push up the number of renters… but every foreclosure also leaves one house empty. Sale or rent are the owner’s primary options. The people foreclosed upon have more options; moving down, moving in with family, friends, etc.

  36. bcasey says:

    I met an artist from the midwest returning home after a long stint in NYC a week ago, he’d spent his most creative years in the Big Apple, but was finally washing up ashore here after a long hiatus. He showed me some of his art via a laptop, but I’m not sure I’m qualified to judge the art. I figured he was the first in a big wave. I doubt landlords are going to be ahead of the curve in the rent market correction, so we’ll probably see this going on for a while.

  37. kishoripapa says:

    I have an idea as to why rents are dropping. During the boom, rents were sky high – not as high as buying but not really affordable by traditional metrics. My old landlady raised my rent a few times and rented vacant apartments same as mine for 20-30% more than my rent. The reason – opportunity cost of not selling. She would always tell me how the building was worth $2 million and that she was holding out for more money. She and other landlords in my neighborhood felt they needed to raise rents because they wanted to make up for the discrepancy between what they got in rents and would they could get if they sold. Why didn’t they just sell? Because they wanted it both ways – the type of money they could have got if they sold but still own the properties. Now that landlords don’t have the perception that they are sitting on goldmines, rents are coming down.

  38. jmay says:

    I own here in LA but I have a couple of friends who are renting. I can tell you that the market is softening compared to what it was a couple of years ago (of course, how could it not?!) but it’s far from a sharp decline in prices. A friend who let go of their one-bedroom in Venice, a block from the beach, reported that it is being rented out at the same price, but the landlords are actually being MORE picky about vetting renters in this environment, not less.

    Another piece of anecdotal humor: I went to Nordstrom’s in the Grove a couple of weeks ago to exchange a Christmas gift, and the ONLY person shopping in the Men’s section was William Peterson, star of CSI. Seems like he’s the only guy who can afford it these days…

  39. dan. says:

    i’ll tell you where the market isn’t softening. apartments around college campuses. my son goes to school in boston and the decent places are all fronted by brokers / agents and its a take it or leave it.

  40. mjohnson says:

    Newport Beach, CA

    One company owns 59 apartment complexs in Newport and Irvine (probably 95% of apartment complexes in those two cities). They’re dropped asking rents $200-$300 across every apartment.

    Was paying $1,850 for 2/2. New rent $1,650.

    Several friends in houses blocks from the beach were paying $2,250-$2,500, recently renewed at $1,900-$2,000.

  41. Cybernaught says:

    In the last 12 years I have never seen a for rent sign in my neighborhood in SF. Three signs have appeared in the last month. They are still there.

  42. jimlindsey says:

    I work in multi-family and a huge reason rents are falling is because people are doubling and tripling up. A an extended family that previously occupied 2 homes are now packing into one home. Same w/ apartments. There are just more people per sf of real estate now.

  43. Big E says:

    I lived in NYC for a couple of years, and I still can’t believe the racket that apt brokers have. As a west coaster (Seattle, San Diego), I’ve never see/heard of broker fees before, and I think most people here have no idea what they are, but it’s just sick.

    For those that don’t know, let’s say you find a really nice place for $3,000/month (pretty typical for NYC). Great! So you decide to move in. What are your move-in costs? First, last and damage (equal to one month’s rent). $9,000 upfront, before you get the keys. Ouch!

    But wait, there’s more! Even if you found this place on your own, if it’s broker managed, then you owe a broker’s fee. WTF?!? So take your annual rent ($3k x 12 = $36,000) and you pay 10-15% of the annual rent to the broker, so $5,400.

    That’s $14,400 just to move in.

    Supposedly, the tenant laws in NYC are really lax, so if you can just get your foot in the door (i.e. move in), even if you never paid another dime in rent (and you had a pretty good lawyer), you could potentially stay put for 9-12 months.

  44. AGG says:

    Not in Vermont. Most people here would rather cut off their fingers than lower the rent. You see scads of places, both commercial and residential, empty for sometimes over a year because of the bullheaded stinginess of many of our landlords. Maybe next year.

  45. miked says:


    Are you at RC? I negotiated down 20% (from the proposed increased rate) at my last renewal in March.

  46. Todd in SM says:

    Just mentioning to family that I noticed a price drop in Santa Monica, CA rent for the first time since 1995. A place I pass on the way to work every day has had a sign out for 3 weeks: 1 bedroom $2000. It dropped to $1900 last Wednesday. 5% drop

  47. I’m here in Venice Beach, about four blocks from the beach.

    Moved in here almost exactly four years ago, paying $2100 at the time and have had a couple of small increases bringing things up to $2,250. At the peak, about a year ago, one guy agreed to $2,650 for a similar place and another couple moved in at $2,450 to another identical unit. (The guy at $2,650 turns out to be boy-toy for a known entertainer who is the actual lessor and I suspect the manager/landlord took some advantage of them.) Current going price? $2,250, which is about what I’m paying. At least one guy has told me that at lease renewal time he’s either getting a decrease to the current ask, or he’s moving.

    Also, two people have converted garages into extra rooms and taken in roommates. The city parking people and LAFD have begun clamping down on the resultant parking problems, fire lane blockages, etc.

    My brother bought a condo in West LA about 24 months ago. Their building was one of the last in that neighborhood to sell out completely before the bust really took hold. They are now facing the first resale attempt and it’s a short sale. If it doesn’t go through, they’ll have a foreclosure. One of the units was just rented out at $2800 for a 3BR 2.5BA with full kitchen, washer/dryer, hardwood floors, and pretty much all the other luxuries. A year ago, the developer decided to rent out a similar building rather than attempt to sell it. Rates then were $3,200-$3,500 for the same space/amenities within a block or two.

    My brother says that in talking with others in the building, the consternation is notable. They believed that the West Side was largely impervious. (LA Times reports this morning that it’s now down 25-30%.) They believed that if they had to move, the rental rates would always cover their mortgage and HOA dues. Now they’re realizing that they could be down $500-700 per month if they have to move. (My brother put down 25%, so he’s not concerned.)


  48. Also telling about the high end of the rental market, from the same LA Times story cited above:

    Sellers have been pulling unsold houses off the market to rent instead, said Elizabeth Puro, a Westside real estate agent, but waiting the market out as a landlord is becoming less attractive as rents go down. That could eventually pull selling prices lower still.

    She estimates there are three times as many houses for lease on the Westside as there were a year ago, and “that market is not as strong as it was. Someone who could have leased a house for $20,000 a month a year ago would have to lease it for $12,000 now,” she said.,0,132182.story