For years, Southern California apartment rents have been soaring.
Now, a new report shows that rents have been rising even faster for houses, which are preferred by families and others seeking a bit more living space.
House rents averaged $3,114 a month in Orange County during the fourth quarter of 2016, according to Irvine-based HomeUnion, a firm that helps investors buy and rent out houses in about a dozen markets across the nation.
That’s up 22 percent, or $561 a month, over the past four years, vs. a 13 percent increase for apartment rents during the same period, figures from Reis Inc. show.
Los Angeles County’s average rent of $2,548 a month last quarter was up 22.1 percent over the past four years, compared with a 21.7 percent gain in apartment rents over the same period. In the Inland Empire, house rents increased 23 percent to $1,729 a month, vs. a 17 percent increase for apartments in the same four-year period.
Low vacancy was a key reason, spurred by a building slowdown during the recession followed by a hiring boom during the recovery, said Steve Hovland, HomeUnion’s director of research and communications.
During the fourth quarter, vacancy rates for investor-owned rental houses ranged from 3 percent in Orange County to 3.1 percent in Los Angeles County and 5.8 percent in the Inland Empire.
That’s comparable to apartment vacancies. But historically, rental house vacancies tend to be higher, Hovland said.
“What this shows is the single-family rental market is even tighter than the apartment market,” Hovland said. “ … You have to pay more rent (for a house), and they’re hard to find, even when you pay more rent.”
By comparison, the national average rent for a house was $1,817 a month in the last quarter of 2016, up 17 percent over the past four years, HomeUnion reported. The national vacancy rate was 6.7 percent.
Another reason the market is so tight: There are more renters in the region and fewer homeowners.
Southern California had almost 280,000 more rental households in 2015 than in 2009, a 12 percent jump, U.S. Census figures show. But the number of homeowners fell by almost 80,000, or 3 percent.
And because there’s twice as many apartments under construction than houses, single-family rentals are getting scarcer.
“There’s pent-up household demand out there,” Hovland said. “(Families are) going to have to be patient. … They’re going to have to go further out or get apartments.”
Rental houses vs. apartments
|Area||House rent/mo.||Apt. rent/mo.||House 4-yr ch||Apt. 4-yr ch||House vacancies||Apt. vacancies|
Sources: HomeUnion, Reis Inc.
Many tax liens and civil judgments soon will be taken off people’s credit reports, the latest move to omit negative information from the powerful financial scorecards.
The decision by the three major credit-reporting firms—Equifax Inc., Experian PLC and TransUnion—could help boost credit scores for millions of U.S. consumers, but could pose risks for lenders. The reports and scores often help decide how much consumers can borrow for a new house or car as well as determine their credit-card spending limit.
The unusual move by the influential firms comes partially in response to regulatory concerns. The three reporting bureaus rarely tinker with the information that goes on credit reports and that lenders consult to gauge consumers’ ability and willingness to pay back debts.
Equifax, Experian and TransUnion recently decided to remove tax-lien and civil-judgment data starting around July 1, according to the Consumer Data Industry Association, a trade group that represents them. The firms will do so if those data don’t include a complete list of at least three data points: a person’s name, address and either a social security number or date of birth.
Many liens and most judgments don’t include all three or four. This change will apply to new tax-lien and civil-judgment data that are added to credit reports as well as existing data on the reports.
The result will make many people who have these types of credit-report blemishes look more creditworthy.
The Consumer Financial Protection Bureau earlier this month released a report citing problems it found while examining credit bureaus and changes it is requiring. Issues the agency cited included improving standards for public-records data by using better identity-matching criteria and updating records more frequently.
Inaccurate information on credit reports, especially if it is negative information, can derail consumers from being able to gain access to credit and even lead to other setbacks like not being able to rent an apartment or get a job.
One in five consumers has an error in at least one of their three major credit reports, according to a 2013 Federal Trade Commission study mandated by Congress. The three credit bureaus received around eight million requests disputing information on credit reports in 2011, according to the CFPB.
In 2015, the credit-reporting firms reached a settlement with New York’s attorney general over several practices, including how they handle errors. This was followed by one with another 31 states. One more state, Mississippi, followed last year.
The state settlements already had prompted the credit-reporting firms to remove several negative data sets from reports. These included non-loan related items that were sent to collections firms, such as gym memberships, library fines and traffic tickets. The firms also will have to remove medical-debt collections that have been paid by a patient’s insurance company from credit reports by 2018.
Such changes might help borrowers and could spur additional lending, possibly boosting economic activity. But it could potentially increase risks for lenders who might not be able to accurately assess borrowers’ default risk.
Consumers with liens or judgments are twice as likely to default on loan payments, according to LexisNexis Risk Solutions, a unit of RELX Group that supplies public-record information to the big three credit bureaus and lenders.
“It’s going to make someone who has poor credit look better than they should,” said John Ulzheimer, a credit specialist and former manager at Experian and credit-score creator FICO. “Just because the lien or judgment information has been removed and someone’s score has improved doesn’t mean they’ll magically become a better credit risk.”
Removing this information from credit reports also will lead to changes in people’s credit scores. Roughly 12 million U.S. consumers, or about 6% of the total U.S. population that has FICO credit scores, will see increases in those scores as a result of this change, according to the company that created the FICO system, which is used by lenders in most U.S. consumer underwriting decisions.
For most of these consumers, the score increase will be relatively modest. FICO projects that just under 11 million people will experience a score improvement of less than 20 points. FICO scores range from 300 to 850. The higher the score, the more creditworthy a consumer generally is.
Scores are projected to rise by at least 40 points for around 700,000 consumers, according to FICO. In many cases, that can mean the difference between getting approved for credit or denied it.
Civil judgments include cases in which collection firms take borrowers to court over an unpaid debt. Ankush Tewari, senior director of credit-risk assessment at LexisNexis Risk Solutions, says that nearly all judgments will be removed and about half of tax liens will be removed from credit reports as a result of the changed approach. He says LexisNexis will continue to offer the data directly to lenders.
In addition, if public court records aren’t checked for updates on lien and judgment information at least every 90 days, they will have to be removed from credit reports.
Lenders will still be able to check public records on their own to find this information
Nationally, 3.9% of home sales failed to close in 2016, compared to 2.1% in 2015, according to Trulia. Homes which changed status from pending or active contingent back to for sale were classified as failing to close.
California had four of the top ten metros where home sales were most likely to fail in 2016, with:
- 11.6% of sales failing to close in Ventura;
- 10.3% of sales failing to close in Los Angeles;
- 9.7% of sales failing to close in San Jose; and
- 9.6% of sales failing to close in Orange County.
The increase in failed listings was partly due to the sudden spike in interest rates in Q4 2016, which caused homebuyers who did not lock in their interest rate to see their purchasing power reduced mid-sale. A significant 4.3% of homes failed to close in Q4 2016, up from 1.4% in Q4 2015.
But Trulia also attributes the increase to the large number of first-time homebuyers that hit the market in 2016.
As evidence, the percentage of starter homes failing to close nationwide rose considerably to 7.1% in Q4 2016 from 2.4% at the end of 2014.
Here in California, the share of starter homes — homes for sale in the low-tier price range — failing to close in 2016 was well above the national average in most metros, at:
- 13.7% in Ventura;
- 12.4% in Orange County;
- 12.2% in Los Angeles;
- 12.0% in San Jose;
- 9.6% in Oakland; and
- 9.3% in Riverside-San Bernardino.
A smaller number of California metros had a below average rate of starter home sales failing to close, at:
- 6.5% in San Francisco;
- 3.6% in Bakersfield; and
- 2.6% in San Diego.
First-time homebuyers complicate the deal
An increase in first-time homebuyers is mostly good news, and evidence our housing market is improving. More first-time homebuyers means our economy is finally healed and expanding following the 2008 recession which delayed homeownership for most young adults.
However, first-time homebuyers usually bring some extra baggage with them compared to seasoned homeowners, including:
- shorter credit histories;
- smaller down payments;
- a greater reliance on Federal Housing Administration (FHA)-insured financing; and
- a lack of knowledge about the homebuying process.
First-time homebuyers are also buying mostly starter homes. These properties are priced in the low tier. In 2016 and 2017, low-tier properties are the hardest to come by, as inventory is tight and prices are rising more quickly in this tier than other tiers that aren’t experiencing an inventory shortage.
” May you always have walls for the winds, a roof for the rain and tea beside the fire, laughter to cheer you, those you love near you, and all that you heart may desire.”
Don’t let your luck run out!