Apartment Rents Throughout West Still Rising

Wednesday, April 16, 2008
Michael Liedtke
San Francisco Examiner

Just because it's a bad time to own a home doesn't mean it's a good time to be a renter.

While homeowners fret about the crumbling value of their houses, apartment renters throughout the western United States are writing bigger checks to pay for their leases, according to a report to be released Thursday.

The average apartment rent through March rose from the previous year in all 19 major Western markets surveyed by the research firm RealFacts, with the increases ranging from less than 1 percent in Reno, Nev. to more than 9 percent in the San Francisco Bay area and Salt Lake City.

Meanwhile, home prices have plunged between 10 and 30 percent in many Western markets, leaving owners feeling poorer and, in the worst cases, so distressed that they decide to stop paying the mortgage because they owe more than the property is worth.

Although home prices and apartment rents in the West have been moving in opposite directions for the past year, the reason for the phenomenon remains a mystery.

Some analysts have theorized that apartment landlords have been able to boost rents as more people lose their homes to foreclosures and have to find somewhere else to live.

Under the same line of reasoning, demand for apartments could be rising because fewer people have been buying homes during the past year with property values in a free-fall and mortgages more difficult to obtain.

But the quarterly data collected by RealFacts so far hasn't found enough evidence to prove the downturn in home prices is helping to drive up apartment rents.

"There has been no increase in demand for apartments, as would be the case if former homeowners were turning into apartment renters," RealFacts Chief Executive Caroline Latham wrote in an analyst of the first-quarter data.

Demand for apartments has even fallen in some markets hard hit by foreclosures. That trend caused Latham to conclude some former homeowners are in such dire straits that they may have qualified for government-subsidized housing.

For whatever reason, apartment renters in some markets are paying substantially more for their places.

San Jose, Calif. - the heart of Silicon Valley - is now the West's most expensive rental market, with the average apartment leasing for $1,660 per month, up 9.1 percent, $139 per month, from the same time last year. That means a Silicon Valley renter can expect to pay nearly $20,000 to lease an average apartment during the next year.

The cost to rent a Silicon Valley apartment is still well below the peak of $1,959 per month - about $23,500 annually - reached in early 2001 at the end of the dot-com boom.

Average apartment rents also are above $1,500 per month in three other California markets tracked by RealFacts: Los Angeles and Orange counties ($1,651, up 4 percent); San Francisco/Oakland ($1,596, up 9.4 percent) and Ventura County ($1,552, up 1.8 percent).

The West's most expensive rental market outside California remains Seattle, where the average apartment lease climbed 8.5 percent to $1,090 per month.

Tucson, Ariz. offers the West's least expensive apartments, with rents creeping up 2 percent to $668 per month.

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