Business

Apartment rents on the rise

Apartment rents throughout the Western United States climbed last year while home prices crumbled in many markets, a contrast apparently driven by the growing number of people who don't want or can't qualify to buy a house.

In Modesto, the average rent rose 0.5 percent in the last quarter of 2007, to $811 a month, over the previous year. Turlock saw a gain of 6.3 percent, to $840 for the period ending in December 2007 compared with the previous year.

Rents also rose 1.6 percent in Manteca, to $949 a month, but declined 0.6 percent in Merced, to $707.

Occupancy was above 90 percent in Turlock and Merced in the fourth quarter of 2007, but dropped by 0.6 percent from a year earlier in Turlock. Modesto gained 0.1 percent in occupancy for the same period.

The rise in rents in most Northern San Joaquin Valley cities mirrored that in 20 major Western metropolitan markets covered in a quarterly survey released Thursday by real estate research firm RealFacts Inc.

In many cases, last year's rent increases were well above the inflation rate.

Apartment dwellers in the San Francisco Bay Area, Salt Lake City and Seattle were particularly hard hit as their average rents rose 8.6 percent to 10.8 percent during 2007, RealFacts said.

Rents in Portland and the Los Angeles area also increased by at least 5 percent.

The changes were less dramatic in most other Western markets, with rent increases ranging from 1.4 percent to 4.4 percent.

Meanwhile, home prices are plunging. For instance, a mid-priced home in Los Angeles County sold for $470,000 last month, a 10.5 percent drop from the end of 2006, according to another real estate research firm, DataQuick Information Systems.

While the reasons for the higher rents 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 credit problems, fewer people can qualify for the financing to buy the home.

And anecdotal evidence suggests prospective buyers who can 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 such as Silicon Valley and Seattle also are propelling rents as more people move into those markets to work.

In some instances, the higher rents are taking a substantial bite out of people's paychecks, especially in places such as Silicon Valley. By the end of 2007, renters there were paying an average of $160 more per month for an apartment than at the start of the year.

That translated into a nearly $2,000 annual increase.

Bee staff writer Ben van der Meer contributed to this report.

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