Region is due for rent increase
High home prices, building crunch favor landlords, experts say.By Jim Wasserman -- Bee Staff Writer
Tuesday, June 6, 2006
Renters Robine and Greg Anderson have lived in this Citrus Heights rental home for about a year and have been renting for 21 years. The couple are waiting for housing prices to cool off before they buy a home. Compared to other U.S. metropolitan areas, average rent increases in Sacramento have been much smaller, which allow the couple to save. Sacramento Bee/Randy Pench
Bring on the moving vans. Renters rule the market -- at least for now.
Unlike their counterparts in many apartment markets across the country, Sacramento-area renters have dodged fast-rising prices and a growing shortage of rentals. In fact, the region has become one of the nation's most stable for renters and some still get move-in incentives.
But don't count on it lasting much longer.
By most accounts, capital-area renters are only months away from the ascending prices that are squeezing paychecks throughout California and much of the United States. Nationally, rising rents are already considered a key driver alongside higher gasoline prices for a sharp 0.6 percent jump in April's consumer price index. "You haven't had the strong rent growth yet. It is coming," said Greg Willett, vice president for analysis and research at M/PF YieldStar, a Texas-based apartment industry consultant.
When, exactly, is still anyone's guess.
But analysts say a confluence of factors in El Dorado, Placer, Sacramento and Yolo counties makes fewer apartment vacancies and rising rents almost inevitable. For the 35 percent of area residents who rent their housing, that means less money for other necessities and an even harder time saving to buy homes.
A significant factor for demand gaining on supply: mortgage rates. They're at four-year highs amid lofty home prices, and freezing out scores of would-be buyers. Likewise, a mounting standoff between buyers who want dramatically lower prices and sellers not ready to offer them is bottling up even more people in rental units.
"We're hoping prices are going to drop in a while," said renter Robine Anderson of Citrus Heights. "It's cheaper right now to rent than to buy so we can save more money for a down payment."
Even with 11,344 homes in the four-county region for sale in April, Anderson and her husband expect to rent until sometime next year.
"Personally, I'm just kind of waiting for things to even out a little bit and get a good deal," she said. "We're just trying to be sensible about it."
Analysts suggest three more reasons for eventual hikes in a region where rents average $921 a month, according to YieldStar.
Market-rate apartment construction and investor interest have stalled amid stagnant rents and rising building costs.
Builders plan only 384 new market-rate apartments in the four-county area next year, compared to 3,500 in 2004, says a local analysis by CB Richard Ellis Inc. Complicating that supply forecast, however, is a growing supply of homes being rented while owners try to sell them.
El Dorado, Placer, Sacramento and Yolo counties continue their rapid growth, adding at last count more than 32,000 people and 22,000 jobs yearly.
More owners are now missing mortgage payments, a phenomenon expected to push more owners into foreclosure sales and back to renting. In recent years up to three-fourths of area buyers have used adjustable rate mortgages, and many struggle now with rising payments tied to interest rate increases.
Area landlords view these as signs the rental market is shifting their way after almost three years offering a month's free rent and other gimmicks to attract or keep tenants.
"We're seeing it change," said Dave Tanforan, who runs 1,270 apartments as regional property manager for G.W. Williams Co. "We're seeing those concessions come way down and the occupancy trends will most likely follow."
"That's one of the biggest topics every month," she said. "The market is just starting to change. We're starting to see that we can get more for our homes as tenants move out."
But it hasn't changed so much that landlords can increase rent on existing tenants, said Regan, a broker with Horizon Properties in Citrus Heights.
The most recent analysis by Marin County-based industry consultant RealFacts shows about 7.3 percent of apartments in El Dorado, Placer, Sacramento and Yolo counties are empty. Some of the highest vacancies are in newer units in Rocklin and Elk Grove. Collectively, they help keep rent increases well below those in other U.S. metropolitan areas.
Nationally, cities such as Fort Lauderdale and West Palm Beach saw apartment rents rise by more than 10 percent during the year that ended March 31, according to an analysis by Texas-based YieldStar.
The Sacramento area's average rent climbed 3.7 percent, YieldStar reported, compared to more than 6 percent in Los Angeles and Oakland and 9 percent in San Jose and Phoenix. Southern California rents are expected to climb another 5 percent to 7 percent this year amid a vacancy rate of just 3 percent, according to a recent Casden Real Estate Economics Forecast compiled by the University of Southern California.
The Bay Area, too, has seen sizable hikes as vacancies fall below 5 percent, according to RealFacts.
Property managers say the Sacramento region usually trails the Bay Area by six to nine months. YieldStar's Willett said Sacramento will follow the nation as well, reacting "pretty quickly" to a supply squeeze with so little construction in the pipeline.
"We think as we move ahead we'll see Sacramento behave more like the other parts of the country," Willett said.
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