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The article claims that there are 700,000 vacant homes as of July, 2005 as the residual stub number. That is ludicrous. Owners of homes don't leave them vacant. They either sell them or rent them out.

By the way, rental rates of homes in Orange and LA County have gone up substantially. I know. I rent out an 1100 square footer in LA now for $2600 a month (and probably could get $2750). The house if worth about $650,000. 3 years ago it was $2000 a month. A partner of mine is renting out is 1800 square footer in Mission Veijo for $2700 a month. It is also worth about $650,000, which is a cap rate of about 3.5% assuming a sale, and a Prop 13 prop tax increase to 1.1% of market value - not a bad return for a rental of a single family house. Rising rents is putting a floor on the amount of further decline in housing prices. It will take a rescession or substantially rising interest rates to push cap rates up, and prices down.

You bring up an interesting point that I have been pondering for a while, but so far I haven't been able to form a position. For instance, my accountant owns a bunch of rental properties. He told me that when housing declined in the early 1990s the rental market also tanked. I have never quite got to the bottom of why this happened. But it has got me thinking about what will happen to the rental market if the housing market tanks. On the surface, it would seem that it would create extra demand for rentals. However, it also means that a whole host of flippers, second home owners, etc. will be forced to rent their condos and homes, thus increasing supply. Any comments on what would happen to the rental market under these conditions???