Unable or unwilling to sell their homes at declining prices, homeowners in Riverside and San Bernardino counties are converting them to rentals, glutting the market and causing rents to fall for the first time in years, according to Inland property managers.
Among the new landlords are investors who bought houses at peak prices and have watched their equity evaporate or homeowners who have relocated, leaving behind a house they can't sell.
There are so many Inland homes for sale, that even if no more come on the market, it will take more than two years to sell the houses available, according to the California Association of Realtors.
Story continues below
Terry Pierson / The Press-Enterprise
Bob Berney and his wife, Rene, walk through their new rental home. Bob Berney, a 46-year-old general contractor, said a month ago he sold for $520,000 a four-bedroom house he bought in Riverside in 1998 for $190,000.
"People who can't sell their homes have two choices," said John Denver, owner of Perris-based John Denver Realty. "They can stop payments and let them go back to the bank or rent them out."
Most will take a financial loss as landlords, he said, because the monthly mortgage payments are greater than the rent they can get. Bill Santoro, owner of 1st Rate Rentals, a rental management company with properties throughout most of Riverside County, said the monthly shortfall averages $500. Denver said he is seeing some landlords taking monthly losses of as much as $1,000.
"It is a good time to be a renter and a lousy time to become a landlord," said Denver. He said in the past six months, the average time it takes to rent out a house in Perris has lengthened from two or three weeks to two months. Rents have fallen about 5 percent. He said the average monthly rent has slipped to $1,100 in Perris.
Denver said today a $300,000 house purchased with a 7 percent down payment would likely require a monthly mortgage payment of $2,500. The same house, he said, can be rented for $1,300 a month, "and the owner has to do the repairs."
Neither the multiple listing services nor California Association of Realtors track houses for rent. However, throughout the two-county region most property managers said they see a marked increase in for-rent listings. Lance Martin, broker-owner of Coldwell Banker Pioneer Real Estate in Moreno Valley, said his single-family home rental business has increased about 30 percent in six months and he estimated it could double in another year.
In the first six months of 2007, for-rent classified ads in The Press-Enterprise took up 35 percent more space than in the first half of 2006, said sales manager Lauree Sierra. Heidi Burns, real estate broker at GMAC Real Estate in Rancho Cucamonga, said the rental market is suffering from oversupply throughout the Inland Empire and most of Southern California.
'Nobody Was Looking'
Rob Dunn, 36, a commercial construction manager, said that a year ago he noticed construction work was slowing in California and took a job in Denver. He and his wife put up for sale the five-bedroom, 3,600-square-foot house that they had bought four years earlier in the Victoria Grove community of Riverside. He said they initially priced the house at $50,000 below market and between December and June they dropped their asking price from $700,000 to $620,000.
There were no takers.
"It wasn't a matter of what your price was. Nobody was looking," Dunn said. Finally, in June, they got their first offer. But it was contingent on the buyers selling their own house in Orange County, which didn't happen.
So 11 months after putting the Riverside house up for sale, the Dunns, who have already moved to Colorado, found tenants to rent their Riverside house for $1,975 a month, or about $500 a month less than the mortgage payment.
The Dunns' real estate agent said a year ago the same house would have leased for $2,100 a month.
Dunn said the cost of keeping the Riverside house has put the family in a financial bind. They have bought a much smaller house in Denver, rarely eat out and have no money for golf, skiing or health club memberships.
"We haven't been to a movie since January," he said, and his wife, an ultrasound technician, worked over the Thanksgiving holiday to help make ends meet.
Still, he said they feel they were fortunate to find a renter within two weeks. "I think we got extremely lucky," he said.
Luis Loucelis, 57, owner of a Riverside gardening service, said that two years ago he and his daughter bought a two-bedroom condo in Riverside for $235,000 that they could have sold 18 months ago for $315,000. It is now valued at $250,000.
He said after his daughter moved out of the condo, he was unable to lease it to cover the $1,435 monthly mortgage payment. So he said he is leasing it to one of his workers for $1,200 a month and making up the difference.
Story continues below
Bob and Rene Berney have moved into a five-bedroom Riverside house with a swimming pool that they are renting for $1,800 a month.
Loucelis said he figures eventually rents and property values will rebound. "You have to be patient, I think," he said. "If you panic and sell you can never recover your losses. I have to wait and just hope things will turn around."
Opportunities
The parallel downswing of the for-sale and rental housing markets has created an opportunity for Bob and Rene Berney, former homeowners who have become tenants.
Berney, a 46-year-old general contractor, said a month ago he sold for $520,000 a four-bedroom house he bought in Riverside in 1998 for $190,000. He figures that two years ago he could have sold the house in the high $600,000s but kept waiting.
"I snoozed. But I am still counted a winner in my book," he said.
Last week, the Berneys moved into a five-bedroom Riverside house with a swimming pool and city lights view that they are renting for $1,800 a month. They had persuaded the landlord to reduce his asking price by $200 in return for which Bob Berney promised to mow the lawn. Berney said the couple is expecting home prices to fall between 20 percent and 30 percent more, at which time they will pay cash for another, bigger house.
Dianna Bush, a property manager at 1st Rate Rentals, said in a year the rental market has flipped from one with too few homes to one with too few renters. She said a year ago it took an average of two to four weeks to lease a property and now it takes six to eight weeks.
Kevin O'Neill, director of property management for ReMax All Stars Realty in Riverside, said that office lowered rents by 5 percent to 10 percent in the last 90 days to be more competitive.
Rich Merlin, owner of Inland Empire Property Management, which handles rental houses in Riverside and San Bernardino counties, said he has begun to offer a half month of free rent on his listings. He said the rental market typically follows the for-sale market in down cycles. He recalled that during the recession of the mid-1990s landlords similarly were forced to use incentives.
Carla Lalonde, district manager in charge of Riverside and Corona for O'Neil Property Management, said she is seeing an increase in 30-day notices from renters who may be seeing an opportunity to shop for better deals. "There is a lot of product out there for people to pick from," she said.
"Most renters can live in a neighborhood they couldn't afford to buy in, particularly now."
