By: CHRIS BAGLEY – Staff Writer
Many new tenants arrive with foreclosure on records, a potential hurdle
Apartment rents in North County and throughout the Western United States climbed modestly last year while home prices crumbled in many markets, a contrast apparently driven by the growing number of people who don’t want to or can’t qualify to buy a house or condominium.
Meanwhile, vacancies are becoming somewhat scarcer as more families lose their homes to foreclosure, according to rental managers and a report that was published Thursday by RealFacts, a Bay Area research firm.
Occupancy rates in San Diego County have crept up by 1 percentage point over the last year, to 95 percent in the October-December period, RealFacts reported.
The average monthly rent in San Diego County rose by 4 percent last year to $1,370 in the fourth quarter. One-bedroom, one-bath apartments rented for an average of $1,202 a month, while three-bedroom, two-bath apartments rented for $1,824 on average, according to RealFacts.
Comparably sized apartments in Riverside County rented for $993 and $1,533. Average rents in that market increased by a modest 1.3 percent, to $1,150.
Record numbers of foreclosures to the north have begun to fill empty apartments, a large number of which were constructed in 2005 and 2006. About 91 percent of the apartments in the county were occupied in the fourth quarter of last year, compared with 89 percent in the fourth quarter of 2006, RealFacts reported.
That trend will probably accelerate, said Christian Davis, who oversees more than 1,000 apartment units in Southwestern Riverside County and about 200 in North San Diego County.
Owners who lost their homes after failing to make mortgage payments have already occupied most of the rental houses where individual landlords sometimes scrutinize credit histories less stringently than the corporate owners of apartment complexes, said Davis, vice president of operations for Gables Residential’s San Diego region.
“We’ve literally cut our vacancy rate in half,” Davis said.
Davis said the vanishing vacancies could allow owners more leverage by early 2009.
For now, workers’ wages and other prices have roughly kept pace with apartment rents in both San Diego County and Riverside County over the last year, based on current data from the U.S. Department of Labor: San Diego County recorded annual inflation of 2.3 percent in the first half of 2007, while average weekly paychecks in the region were rising by about 3 percent annually in the first three months of the year.
Increases in monthly rents were much larger in several urban areas, including a whopping 10.8 percent climb in Silicon Valley, to an average of $1,647.
While the reasons for the higher rents in most areas of California are difficult to pinpoint, a sharp downturn in the number of people buying homes appears to be a contributing factor.
As lenders have become more cautious while wrestling with huge losses from past loans to borrowers with blemished credit problems, fewer people can qualify for the financing to buy the home.
And anecdotal evidence suggests prospective buyers who can still get a mortgage are holding off in hopes that they can get an ever better deal if real estate prices continue to decline as many economists anticipate.
Fewer home buyers typically translates into more people trying to lease their living space —- a supply-and-demand dynamic that works in the favor of apartment landlords.
The abundance of high-paying jobs in high-tech havens like Silicon Valley and Seattle also are propelling rents as more people move into those markets to work.
The West’s least-expensive apartment rental market remained Tucson, Ariz., where the monthly cost edged up 2.9 percent to $665.
Davis said Gables and other apartment companies across the region are changing the way they evaluate applicants from foreclosure situations.
A foreclosure had been a very heavy black mark, but runaway mortgage payments got the better of many people with otherwise solid credit, Davis said. The challenge is to distinguish such renters from those who had borrowed on their homes irresponsibly, he said.
“It’s forcing us and our competitors to go back to our procedures and say, ‘How do you adjust this?’ ” he said. “We’re in the business of giving people homes, but we’re not in the business of doing it for free.”
