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What goes down will also go back up

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POSTED October 15, 2009 9:58 p.m.
Fifteen years ago, the average home on the resale market in Manteca closed escrow at $125,000. It was $390,000 in 2005. The market peaked at $413,000 in 2006. Today the average closing price in the Manteca resale market is $178,044.

The increase in value between 1994 and 2005 was 211 percent.

By comparison, the jump in value between 1994 and today is just over 40 percent.

Everyone has a story about price drops in the selling prices of homes.

But what about rentals?
Back in 1994, classified ads in the Manteca Bulletin had the typical three bedroom, two bath home with about 1,300 square feet renting for under $800. Today, that rent is just over $1,250. That a 55 percent increase to rent a typical home.

Granted, there is a slight disconnect between the two comparisons. Virtually every home sold back in 1994 was around three bedrooms, two baths with 1,300 square feet - just like the newer rentals. Today, resale homes often have four and five bedrooms with square footage hovering around 2,800 square feet.

The upper end one-bedroom apartments in Manteca back in 1994 rented for $525. Today it’s $825, or a 57 percent hike.

All of this prompts the age-old question – do you rent or buy if you are in a position to do so?

You need to keep in mind a few things. First, this all shall pass. That doesn’t mean in three years from now prices will be going up faster than the Burning Man pyre in the Nevada desert

Usually rents and home prices follow each other upward, so what gives?

When things get back to “normal” it will be a slightly different ball game thanks to the long overdue price adjustment. The big constant that won’t change is the fact California – despite all the foreclosures – still has a housing shortage.

What assures rents will start accelerating faster than inflation in Manteca is the lack of new rental properties besides the standard single family home. Those rental properties run the gamut from apartments to duplexes.

Yes, there are 300 plus new homes still are built and sold in Manteca each year. So why, you might ask, aren’t there any more apartments being built? The commercial mortgage sector today is where residnetial foreclosures where a few years back. There are major loans coming due that involve huge properties such as office towers and indoor shopping malls to run-of-the-mill stand alone structures. Financing for apartment complexes – even those that pencil out in stronger markets - has dried up in California. Experts don’t anticipate money being available for about 18 months.

Add in the approval process and the construction time that means additional apartments of any consequence are at least three years away in Manteca.

And while apartment complexes have lowered rents since the start of the year they will be in a position to raise them eventually.

Apartment rents are arguably the best barometer of what the market will bare. They typically are at the end of the spectrum when it comes to monthly housing costs. They are most susceptible to housing vacancy gluts plus when demand tightens they typically have upward rent movements.

Toss in the fact that none of the 300 homes being built currently in Manteca can be described as working class housing and you have the ingredients for rents to climb.

Growth areas in California will continue to be more susceptible to upward pressure on prices than much of the rest of the country for a wide variety of reasons not of which the least is higher development standards and the environmental review process that adds time and money to an apartment project.

Manteca, unlike San Jose, is the promised land of home ownership. People from the Bay Area don’t move to Manteca typically to rent and commute back to their jobs. Home ownership drives their commute.

When the draw of housing ownership in the Bay Area once again meets the reality of Bay Area prices as the economy recovers, rest assured those people will look eastward and see their answer in places like Manteca.

That’s when Manteca no longer stands now as it does as part of the Northern San Joaquin Valley market but instead will again become an extension of the Bay Area market.

When that happens, housing prices will increase but so will rents.
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