Rising rents could help spur housing market

Courtesy of Mike Broermann

This two-bedroom rental loft in San Francisco can be yours for $7,500 per month. Click for more images.

By Bill Briggs

Complain, if you must, about that loftier monthly apartment payment, but those rising rents may help rekindle the chilly U.S. housing market, according to a new report.

Falling home prices and record-low mortgage rates have failed to do much to entice a fresh flock of buyers, keeping the housing market largely dormant. Although home sales and prices rose in April and the market appears to have bottomed in many areas, foreclosures and underwater homes appear likely to keep activity depressed for years to come.

To the rescue, perhaps: an invigorated national rental market. As the housing market has tanked, young adults increasingly have turned to the rental market. Last year alone the number of renter households grew by 1 million -- the largest such boost since the early 1980s. That has caused rents to edge higher across the country, says an?analysis?released today by Harvard University?s Joint Center for Housing Studies.

?I would think that with rents rising, this would be an incentive (to purchase a house) for those renters who have been holding off but who eventually planned to buy,? said Dan McCue, research manager at the Joint Center for Housing Studies.

Courtesy of Mike Broermann

The view from a $7,500-a-month San Francisco rental unit. Click for more images.

The rental market is in the midst of a ?sharp turnaround,? says the Harvard report. Nationally, apartment vacancies declined from 10.6 percent in 2009 to 9.5 percent last year ? the lowest vacancy rate since 2002. Vacancy rates fell in two-thirds of America?s 75 largest metro areas last year.

Typically, adults under age 25 comprise the bulk of the U.S. renter population. But the 25-to-34-year-old crowd is driving the latest uptick, accounting for 645,000 new, rental households between 2006 and 2011, the Harvard researchers found.

Rental inflation was ?evident in all regions,? but cities in the Northeast posted the largest collective increase ? 6.5 percent ? while rental rates in western U.S. cities bumped 5.2 percent higher in 2011, according to the report.

Renters in the San Francisco area were among the hardest hit, with rents up 11 percent last year.

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?Definitely, at the end of last year, all of the (rental) supply shrank here. So now I?m getting crazy prices ? like a one-bedroom, 1,000-square-foot loft that?s renting for $3,900 a month,? said Mike Broermann, principal and broker with the San Francisco-based real estate firm Group MB.

A year ago that apartment would have rented for $3,200, Broermann estimated. Such sticker shock is likely to induce more San Francisco renters to consider purchasing instead, Broermann said.

?If you?re paying $4,000 for a one bedroom, you might consider buying a place,? Broermann said.

As evidence, he mentioned a 1,000-square-foot loft in a ?reputable building? listed three weeks ago for $699,000 that already has drawn three bids. At current mortgage rates, and with 20 percent down, monthly principal and interest payments on the property would be under $2,700.?

?I haven?t seen multiple offers in years. In fact, sales haven?t been this strong in six or seven years,? he said. ?Really, it?s the lack of supply in both sectors" ? rentals and existing homes ? that?s now fueling the San Francisco housing market, he said.

Of course, the Bay Area market is unique for its close ties to the high-tech industry, which is undergoing a new boom with the explosion of new-generation Web and social media companies led by Facebook.

Nationally, the available stock of homes listed for?sale was down 20 percent last month compared to a year earlier ? or 1.88 million homes total, Realtor.com reported Wednesday. Sales of existing-homes rose 3.4 percent from March to April according to the Realtors group.?

Still, the housing market continues to flash mixed signals, indicating that if a true resurgence does take hold, it will accompanied by some ragged and rough moments. New data released Thursday by RealtyTrac showed?that foreclosure filings increased by 9 percent in May.?

But that bleak report won't slow some of the fresh housing speculation spreading through the Bay Area as young tech tycoons look to invest their new riches into swanky homes.?

'Now, with Twitter and the Facebook, I?m meeting a lot of 25-year-olds who say, ?Hey I?m worth $2 million just yesterday, so I should buy a place, right?? These kids are cashing out and thinking about buying places,? Broermann said. "That (attitude)?has a secondary effect (on other prospective buyers, including many renters) who think - oh, everything?s going to boom, all these kids are going to have money, these places are going to worth more. So people are trying to beat them to buy places."?

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