Southern California apartment rents are expected to keep falling
Apartment rents are expected to fall as much as 3.5% in Los Angeles County this year, according to a study released Wednesday, as landlords compete for tenants in a market battered by stubborn joblessness and saturated with freshly constructed housing units.
For apartment dwellers, falling rents have been the housing bust’s thin silver lining: During the boom, rents had climbed in tandem with housing prices.
Southern California’s high number of foreclosures and the rampant overbuilding during the housing bubble has resulted in a glut of rentals as demand has slackened with high unemployment, according to the Casden Real Estate Economics Forecast.
Meantime, many struggling young adults have moved back in with their parents, and older people who have lost their homes have started living with relatives, according to a separate study for the Mortgage Bankers Assn.
That study -- by Gary Painter, a professor in USC’s School of Policy, Planning and Development -- found that a net 1.2 million American households disappeared from 2005 to 2008.
While rents are likely to fall 3.5% in Los Angeles County and 2.4% in Orange County, those declines are expected to be more moderate than in 2009. Rents should fall less than 1% in Riverside and San Bernardino counties but inch up less than 1% in San Diego County, according to the Lusk Center study.
“The take-away is that the economy is showing some small signs of improvement. All markets are going to perform better than the previous year, but for some that still means a decline,” said Tracey Seslen, a professor at the USC Lusk Center for Real Estate who co-wrote the Casden study. “L.A. is going to perform the worst.”
In Los Angeles County, the average monthly rent fell to $1,488 at the end of 2009, a 5.8% decline from a year earlier.
More than 5,700 apartment units were completed in the county in 2009, about 42% of the new supply for the region last year. This year, 4,805 units are scheduled to be built, representing more than half of new construction in Southern California.
Property owners are feeling the pinch.
“It is a way more competitive marketplace now, where before at the high end you could still rent an apartment quickly,” said Mark Howell, who owns the historic La Fontaine building in West Hollywood as well as several smaller rental properties in West Hollywood and Beachwood Canyon.
“You really have to sit on that apartment to get that tenant, so you will often wait two or three months to get what the apartment is worth. You really have to lower the rents,” he said.
Howell estimates the income from his buildings has fallen 2% to 3% since 2007. While rents at La Fontaine and other high-end properties have held up, he said he has had to lower his price on units in another building, to $2,200 from $2,500 for a two-bedroom apartment, for example, or to $1,550 from $1,700 for a one-bedroom. His portfolio hasn’t declined more because he has brought other units up to market value as tenants have left, he said. Nevertheless, 2009 was intimidating, he said.
“Everywhere you would go in West Hollywood you would see a ‘for rent’ sign,” he said. “It was scary.”
The average Orange County apartment rented for $1,464 in 2009, a 4.4% decline from 2008, as the fallout from the subprime mortgage crisis took its toll.
Jessica Nicole Filicko, 30, said she was renting a condominium in Fullerton last year for $1,100 a month when it was foreclosed on by the lender. While the experience was stressful, she said, the lender ultimately paid her $3,500 to vacate the property, and she found a comparable unit in the same complex for $995.
“It definitely is a noticeable change,” she said. “I do see a little bit more of my income, and I don’t have to live paycheck to paycheck. If something were to happen, there is that cushion, which is a little less stressful.”
The average rent in the Inland Empire -- San Bernardino and Riverside counties -- fell 3.8% to $1,024 in 2009 from the year before.
Seslen of USC said that, while investors have poured money into the region snapping up foreclosed properties, they are not putting many on the market as rentals but are rather holding on to them.
“Their holding costs are relatively small compared to your average Joe,” she said. “So they may find that it is worthwhile to keep the home unrented until they decide the time is right to resell.”
San Diego County’s average monthly rent had the smallest decline in the region, 1.3% to $1,323 at the end of 2009 compared with a year earlier.
Times staff writer E. Scott Reckard contributed to this report.