Analyst: Rising rent a boost for homebuying

October 25th, 2012,  by 

OC Register
Veteran Southern California real estate analyst G.U. Krueger adds his commentary on the housing market to this blog in a spot we call “Thursday Morning Quarterback.” Here’s his latest installment. …


RealFacts’ third-quarter reports shows rents are rising throughout the nation. And not just in the major job centers like San Jose, San Francisco, and Denver — but also in smaller attractive metros like Boulder, Colo., Durham, N.C., and Jacksonville Fla.Apartment owners are enjoying the economic recovery — and their bid to cash in, raising rents, may be a plus for the ownership segment of housing.

But what about California?

According to RealFacts, Orange County rents for all asset classes averaged $1,628, which made it the fifth most expensive apartment market in California following San Jose ($1,980), San Francisco ($1,858), Los Angeles ($1,757), and Santa Cruz ($1,664). Rents rose annually by 10.5% in San Jose, 9.5% in San Francisco, and 4.7% in Orange County.

Apartment rents becoming expensive is creating a significant gap between the rents consumers are expecting and reality.

According to a recent survey by Apartments.com, people searching for apartments have unrealistically low rent expectations, particularly in many of the “hip” cities that young adults seem to like. In Brooklyn, for example, consumer expectations are 50% below actual rents; in Los Angeles 36%; and in San Francisco 35%.

Sounds like especially young adults might be experiencing sticker shock. But what does it all mean?

It is a good economic sign that the apartment market is still going strong. That may benefit the housing market in the years ahead.

The financial competitiveness of apartment living has been sheltered until recently by low price-gain expectations for ownership housing. But this has changed recently, which is increasing the attractiveness of owning a home for many consumers.

Finally, especially young adults — those echo boomers in search of an active urban lifestyle -– may be somewhat surprised by expensive and rising rents as they enter the market. As they search for a place to live, they are likely to develop more realistic rent expectations — and turn a more favorable eye to homeownership.

Chart below compares third-quarter RealFacts data for major California markets — and recent job growth:

Metros Q3 asking rent Annual rent growth Q3 vacancy rate Annual job growth 9/12
San Jose $1,980 10.5% 4.7% 2.5%
San Francisco-Oakland $1,858 9.5% 3.9% 3.1%
Los Angeles $1,757 4.7% 4.8% 1.6%
Santa Cruz $1,664 3.0% 4.0% 2.9%
Orange County $1,628 4.7% 5.4% 1.7%
Ventura County $1,456 3.7% 4.2% 0.5%
San Diego County $1,456 3.8% 4.9% 2.1%
Inland Empire $1,107 1.7% 6.3% 1.4%
Sacramento $963 0.9% 5.9% 2.0%
Bakersfield $913 7.4% 2.7% 1.6%
 

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