U.S. Apartment Rents Rise in First Quarter Amid Housing Slump

The average asking rent for U.S. apartments rose 1% in the first three months of 2008, the 24th consecutive quarterly gain, as the U.S. housing slump deterred people from buying homes, according to real estate research firm Reis Inc.

San Francisco had the most rapid rental growth at 11.1%, followed by San Jose at 8.9%, New York at 8.8% and Seattle at 7.8%, New York-based Reis said. The national vacancy rate rose 0.3% percentage point to 5.9%.

The U.S. housing slump has entered its third year with plunging sales and prices and rising foreclosures. Prices fell in 21 cities in January, real estate data company Radar Logic Inc. reported this week, and foreclosures rose to a record at the end of 2007, the Mortgage Bankers Association said last month.

“People see a potential for prices to fall further, credit standards are tighter and they have to make a larger down payment,” said Sam Chandan, chief economist at Reis. “People don’t feel confident timing the bottom of this thing.”

A deteriorating housing market beset by stricter loan terms and falling home prices is the “dominant driver” pushing people to rent apartments, Chandan said.

The last time rents fell was the first quarter of 2002, when they declined by 0.2%, according to Reis.

New York had the highest average rent at $2,790 a month, followed by San Francisco at $1,801, Fairfield County, Conn., at $1,759 and Boston at $1,620, Reis said. In the Los Angeles apartment market, the average asking rent was $1,425, compared to $1,036 in the top 79 markets.

New York also had the lowest U.S. vacancy rate at 2.2%, followed by Long Island at 2.8%, Central New Jersey at 3.2% and San Jose at 3.5%, according to Reis. Los Angeles ranked seventh at 3.5%.

“Sunbelt cities” such as Jacksonville, Palm Beach and Miami in Florida and Phoenix and Las Vegas had higher vacancy rates because condominiums built for home ownership are being leased instead to renters, Chandan said.

“They’re competing directly” with apartment buildings of 40 units or more, the kind of property primarily tracked by Reis, he said.

Memphis, Tennessee, had the nation’s highest vacancy rate at 10.1%, followed by Columbia, S.C., at 9.5%, Jacksonville at 9.4%, Colorado Springs, Colo., at 8.9% and Phoenix at 8.7%, Reis said.