The average Los Angeles County rent is predicted to soar nearly 10% over the next two years, leading a resurgence of the costly Southland apartment lifestyle.
Southern California’s economic recovery may be halting and tepid, but young workers gaining new employment, a demand for apartment living and scarce construction of units are creating a rental squeeze in the region, according to a report released Wednesday by USC’s Lusk Center for Real Estate.
The report is the latest evidence that the rental market is on an upswing, an early indicator that housing may be headed into recovery even as home prices tumble to fresh lows. The Lusk Center’s annual Casden Multifamily Forecast showed rents last year rose in 39 of the region’s 40 sub-markets tracked by university experts in Los Angeles, Orange, San Diego, Riverside and San Bernardino counties.
That across-the-board increase is a change from 2010, when only 26 markets showed flat or increasing rents, and a big turnaround from 2009, when only three sub-markets saw rents rising. Rents are expected to rise throughout the region over the next two years, with Los Angeles County headed for a big increase given the dearth of open units available to tenants.
“For investors, it’s a good thing; for renters, it’s a bad thing,” said Richard Green, a professor and director of the Lusk Center.
“Rental affordability is a huge problem in coastal California — in San Diego, Orange and L.A. counties,” Green said. “If you are a typical renter, you are paying too much money for your rent in the sense that it is putting a real stress on you financially.”
Rising rents and falling home prices could help usher in a housing market recovery if enough renters with good credit take the plunge into buying. The weak pace of construction of new apartment buildings throughout the area is also making it tough to easily find rental housing and is driving up the cost.
The rise in rents tracks a national trend in the apartment sector. Since much of the recent job growth has been driven by young people finding work, and their entry into the housing market is typically through renting, vacant units are filling up fast, the USC report noted.
Los Angeles County was the strongest performer out of all the Southland counties analyzed by the Lusk Center. The county had a 6.2% increase in average rent during 2011 to $1,596 a month. The forecast predicts that the county’s average rent will rise 7.9% in 2012, with total growth of 9.6% by the end of 2013.
That forecast is tempered by the news that L.A. County produced lackluster job growth during the first two months of the year. Although economists had predicted that 35,000 to 40,000 jobs would be created in 2012, the county shed jobs during the first months of 2012, the report said.
In the rest of the Southland, average rent was up 3.2% to $1,523 in Orange County during 2011; up 3.4% to $1,069 in the Inland Empire; and up 4.3% to $1,377 in San Diego County.
A separate report by mortgage market tracker CoreLogic of Santa Ana released Wednesday highlighted investors’ growing interest in converting foreclosures to rental properties. The report estimated that market could be worth as much as $100 billion to investors.
The report also underscored other positives for the housing market, in particular that housing affordability is at its highest level ever.
“Many of the key housing metrics are holding steady through the typically slow winter season,” CoreLogic economist Sam Khater wrote in the report. “The real estate market may be experiencing a nascent recovery as many of the statistics continue to show slight positive signals.”
Despite much concern that a new wave of foreclosures could be imminent, foreclosure tracker RealtyTrac reported that foreclosure activity during the first three months of the year hit its lowest quarterly total since the fourth quarter of 2007. A total of 572,928 homes received foreclosure filings in the first quarter of 2012, a 2% decline from the previous quarter and a 16% drop from the first quarter of 2011.