by Calculated Risk on 4/14/2011 11:50:00 AM

A couple of years ago, when prices fell sharply in many high foreclosure low end areas, we discussed a probable "hard floor" for low end house prices. The price floor would come from investors paying cash and buying low end properties to rent.

Of course this investment strategy doesn't work well in negative absorption areas like Detroit (areas with a declining number of households), but in many areas this is exactly what has happened.

However this doesn't work for high end areas.

Lauren Beale at the LA Times starts with an example: Leasing is in fashion among wealthy house hunters

[A] five-bedroom house in the Sunset Strip area priced at $3.5 million for sale ... the owner recently accepted a short-term lease [for] $10,000 a month to rent.

Why buy when you can't rent for about half the cost? And the renter is not taking the risk of further price declines.

And if we look at this from an investor perspective, no one would pay $3.5 million for $10,000 per month in gross rent. After taxes, maintenance and a high vacancy factor, this is a cap rate under 2%. Ouch (note: high end homes for lease have very high vacancy factors).

More from Beale:

No single clearinghouse tracks such data for all of Southern California, and many top-dollar leases are handled privately, away from the prying eyes of the public. Still, niche data and anecdotal evidence point to an upswing in upscale rentals.

Lease offerings priced at more than $10,000 a month were up 15% through the first part of April over the same period last year on the Combined L.A./Westside Multiple Listing Service, while those in the $7,500-to-$10,000 price range saw a 7% increase

Instead of lowering the price, some owners are leasing - and waiting for a better market:

Adding to the supply of lease houses are absentee owners and investors who haven't been able to sell and decide to take their for-sale homes off the market, put them up for lease and "sit out for six months or a year" or more ...

Just more examples of chasing the price down ... and more accidental landlords.