Argument for rental drops:
The glut of vacant homes will be exacerbated by the exodus of people. Remember that in the year ending June 2005, 44K people left San Diego. I assume that was the beginning of a trend, and trends like this have a way of picking up speed.

Perhaps by June 2006, another 65K people will have left. Add to that the contractors who are out of work, the people who are foreclosed on who don’t have money now to live in San Diego, and we may hit 85K people/year leaving over the next few years until prices drop and jobs pick up again.

Here’s an intersting factoid: In LA and Orange County, 20% of rented untits have more than 1 person per bedroom (11% in SD, 6% in US). So a 2 br apartment has 5 or more people. Despite crowded housing, rents have not gone up because the demand just isn’t there. Why will this change? Only an increase in wages can cause rents to go up in high-priced rental markets like southern CA.

Argument for rents going up:

In the past, when housing prices dropped, rents went up. People who are not buying homes are instead renting. This is why the CPI went up more than expected last month, and economists are expecting it to continue going up, since rents are about 30% of the CPI component.

Will rents go up or down? Since I really don’t know, and I don’t want my landlord to sell this house from under me, I am signing a 2 year lease this weekend. Am I foolish?