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Sunday, November 29, 2009

Apartment Rents Fall 4.9% in SoCal

by Calculated Risk on 11/29/2009 09:23:00 AM

From Alejandro Lazo at the LA Times: Falling rents aid homeowners in mortgage trouble

Southern California rents peaked at $1,501 in the third quarter of 2008 ... Since then, rents have fallen 4.9%, to an average of $1,427 in the third quarter of this year, according to a survey of larger apartment complexes by property research firm RealFacts. The drop came as the occupancy rate of the buildings ticked down 0.8% to 93.7%. The data don't include homes converted into rental units or smaller apartment buildings.
Job losses and competition from foreclosed homes have made concessions by large landlords common. Thomas Shelton, president of Western National Property Management in Irvine, said he was offering about a month of free rent for every 12-month lease signed.
Although falling rents and significant concessions are good news for renters, this will also lead to more apartment defaults, higher default rates for apartment CMBS, and more losses for small and regional banks.

And falling rents are already pushing down owners' equivalent rent (OER). Since OER is the largest component of CPI, this will apply downward pressure on CPI for some time. And lower rents will also put pressure on house prices, since renting is a competing product.

But renting is a relief to some:
Thomas DeLong walked away from the mortgage on his final home in September and began renting a house for about $1,400 a month, with utilities, in the high-desert area of Perris.

DeLong ... said renting was a relief after years of worry and a financial juggling act that came crashing down all around him.