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If the housing market is really on the way down, then why am I having such a damn hard time finding a new place to live? Seriously. I need to move because the dude who owns the house I live in had an adjustable rate mortgage that, in light of recent interest rate developments, he no longer thinks it's worth holding on to. So he's selling. And presumably he's not the only one in that boat. This is the sort of thing that should drive home prices down, and according to reporting I've seen that is what's happening in the District. But as I look around for a new home, rents seem way up from where they were 18 months ago.

July 30, 2006 | Permalink


Are house prices down from where they were 18 months ago though? They might be weakening now from a point higher than they were 18 months ago.

Posted by: Tim Worstall | Jul 30, 2006 6:23:43 AM

The buying and selling of housing is down. The rental market is hot.

Posted by: Total | Jul 30, 2006 7:03:00 AM

Although surely related, the rental and ownership markets are not the same. Maybe in a hot market, some people own as a speculation, and regard the rent as incidental. When the market cools, the rent becomes more important.

Posted by: Ken C. | Jul 30, 2006 9:19:34 AM

"why am I having such a damn hard time finding a new place to live?"

Let supply and demand work their magic. I hear you can find some real bargains in West Virginia. It's beautiful down there, and the commute is only a few steps short of conceivable.

If you're contributing to the hot rental market by seeking shelter, you're part of the problem, not part of the solution.

Posted by: Petey | Jul 30, 2006 9:59:03 AM

Ken C.'s on to something: people who bought a few years ago have kept rents relatively low, figuring that the $100k they would clear on the sales price was more important. Now that the $100k isn't looking so likely, they need to raise the rent. (For reference, my place's rent is going up, too.)

Posted by: Z | Jul 30, 2006 10:01:35 AM

one of the drivers in the recent increases in the CPI is that rents are going up after a few years of staying the same. the CPI premise is that rent is the cost of living, so to speak, so that when housing prices go up while rents don't, that's a sign of asset appreciation, not an increase in the cost of living.

housing prices tend to be sticky on the way down - people will pull homes off the market if they can't get their price - but in certain markets, down they will definitely come over the next couple of years.

Posted by: howard | Jul 30, 2006 10:55:40 AM

I thought that the rental and housing markets tended to be inversely linked. When interest rates are low and lots of people are buying houses, rents go down because fewer people are in the rental market. When interest rates are up and fewer people buy, they have to rent, tightening the market. At least that was my understanding.

Posted by: Gabe | Jul 30, 2006 11:20:38 AM

There are multiple possible explanations:

1) illegal immigrants are unfairly competing for american apartments

2) The number of empty dwellings sitting on the housing market cuts into total housing allocation for DC.

3) Your landlord is now looking for a place to live now too.

4) It's college intern season.

5) Everyone is looking for a minimal studio or one bedroom apartment. The price of 2+ bedroom apts have been flat through the last 4 years (in NYC) while the price of 1 bedroom apts has increased 20%. Find a 7 or 8 GWU grad students and rent a house. That walk-in closet will fit a twin bed and the unfinished basement with exposed electical wiring will be a great place for the young couple with the toddler.

6) Property taxes are simply too high. Also, exorbitant estate taxes force many family owned property management companies to go out of business.

7) Stubborn democrats obstructing Arctic drilling legislation have kept Congress from getting around to solving the housing problem.

8) The proliferation of gays and gay culture has placed a premium on apartments in the vicinity of Dupont and Logan circles. After one or two gay tenants townhouses are sylish enough to leave the rental market and sell at a premium on the housing market.

Posted by: B | Jul 30, 2006 11:56:14 AM

Here's the reference for # 5:


Posted by: B | Jul 30, 2006 12:02:50 PM

The price of a house is function of: how much a person is willing to pay each month for mortgage. This affects the overall price through the interest rates (higher rate + same mortgage payment = lower house price), but does not affect the rent.

Posted by: cedichou | Jul 30, 2006 12:16:16 PM

Here's the DC chart for the last few years (they chart 4-6 year old data even when the sample number makes it stupid to do so):


Posted by: B | Jul 30, 2006 12:38:02 PM

I seem to remember you (Matt) posting about how expensive local real estate was to buyers relative to renters. If I remember correctly, you wondered how much higher purchase prices could go without the buyers getting an investment return from higher rent.

It could be that these two factors are not quite so closely related and are going through separate and opposite corrections. They're probably closely related but we can't assume they are.

Posted by: John | Jul 30, 2006 5:40:32 PM

Offer to buy the place from the dude for a low-ish price, and stay where you are?

Posted by: otto | Jul 30, 2006 10:55:30 PM

I think the reasons are:
- People that would have bought a house a couple of years ago are renting instead while they wait for prices to go down.
- There's been a ton of 'condo conversions', i.e. apartment buildings being converted to condos by greedy owners trying to capitalize on the hot housing market. This has reduced the supply of available rentals, and the people thrown out of their old facilities have increased demand when they have to find scarce rental units.
- Owners that bought in the last several years can't cover their ownership expenses with rents so that reduces supply that could have been available.
- The housing slowdown will probably take up to a year to start affecting other sectors of the economy. Rents may decrease afterwards as investor owned houses/condos that are for sale are pulled off and put into the rental market.

As for B's xenophobic comment about illegal immigrants "unfairly" competing for apartments, that doesn't make any sense:
- There is no evidence that illegal immigration has increased substantially in the last few years.
- If the illegals weren't here someone else would be here doing the work they are doing, and requiring housing.
- I doubt that Matt is looking for the same housing that illegal immigrants are.

Posted by: miguel | Jul 31, 2006 1:47:30 AM

I remember you had posted something similar (last year?). Then it was about how rents and housing prices were moving in opposite directions and that this was clearly a bad thing. Prof. DeLong showed why you were wrong then (interest rates were low, allowing people to rent you a house much cheaper than the price of the house indicated), and that's why you're having trouble now. Interest rates are going higher. The only way for owners to continue making mortgage payments is to raise rents. But many owners (cf. your own) are also selling. Coupled with high interest rates, this additional inventory on the market is driving down housing prices.

Posted by: bhagavathy | Jul 31, 2006 11:14:55 AM

I'm curious though, am I wrong that low interest rates should lower rents not raise them and that the housing and rent markets are inversely linked? I mean, I'm assuming that there is a population of people who are either going to buy a house or rent. I would assume low interest rates are going to make more of these people buyers. Then there are fewer renters, meaning that the demand goes down and rent drops accordingly. If interest rates rates rise then fewer of these people are going to buy, they stay in the rental market creating a shortage of places and higher prices. Its a simplistic analysis I know but I'm curious if its a particularly flawed one.

Posted by: Gabe | Jul 31, 2006 11:26:17 AM

I thought you wanted to get out of that neighborhood anyway in light of its newfound excessive trendiness. Here's a perfect excuse to move to one of the still sketchy or non-trendy neighborhoods to your east.

I'll put in another plug for my neighborhood in Southwest. The old guy across the hall from me just put his unit on the market for under $200k, and home values are still going up in this neighborhood because of the stadium and related development.

Posted by: flippantangel | Jul 31, 2006 11:34:05 AM

As for B's xenophobic comment about illegal immigrants "unfairly" competing for apartments, that doesn't make any sense

Did my arguments about it being the fault of gays, high taxes, and democratic obstruction of ANWR drilling make more sense?

Posted by: B | Jul 31, 2006 12:32:51 PM

B: you need to account for the snark-challenged in future posts.

Posted by: Nat | Jul 31, 2006 12:55:56 PM

btw, how much is your landlord asking for the house?

Also, you should get a firm grip on the legal rights that you have as a tenant whose home is being sold. DC is pretty strong on this point and it may give you some extra time looking for a new place to live. You also have the right of first refusal to buy the place, although I assume it's probably beyond your and Kriston's means at present.

Posted by: flippantangel | Jul 31, 2006 2:20:24 PM

B, oops, Nat is right, I am snark-challenged

Gabe, makes sense to me.

Posted by: Miguel | Jul 31, 2006 2:51:49 PM

Also, you should get a firm grip on the legal rights that you have as a tenant whose home is being sold.

Um, yeah. Why do you have to leave, Matthew? Normally the sale of an apartment building doesn't give the new landlord the right to immediately terminate leases (I guess unless there was something in your lease to that effect). Or were you renting month-to-month?

Posted by: Al | Jul 31, 2006 3:26:18 PM

cozaar cozaar

Posted by: cozaar | Jul 31, 2006 4:05:56 PM

Are you fishing for a retainer?

Posted by: theCoach | Jul 31, 2006 4:15:11 PM

I'm not admitted to the bar in DC... but I hear it's not hard to waive in! :-)

Posted by: Al | Jul 31, 2006 4:24:55 PM

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