Economy Spurs Less Demand by Renters

RISMEDIA, February 25, 2009-(MCT)-The rental market is softening, spurred by a feeble economy that has more people searching for roommates or moving home with their parents.

Rents fell by as much as $200 or $400 per month at a handful of apartment complexes last year, while most other property owners froze or slightly reduced rents, said Dawn Dyer, president of Dyer Sheehan Group in Ventura.

It just isn’t worth taking the chance of losing tenants to make an extra $25 a month, said Linda Gilden, a Fillmore resident who owns an apartment building in Santa Paula. She noted that once a tenant is lost, an apartment stays vacant for a while.

“I would love to have an automatic turnover like I used to, but now it takes several weeks or a month,” she said. “Our philosophy is to take a little less than market value in order to keep the tenants.”

Many others are thinking along the same lines, all across the country.

Ventura County’s average monthly rent was $1,515 in the fourth quarter ended in December, a 2.6% decline from the previous year, according to RealFacts, a Novato-based real estate research firm. The average occupancy rate was flat, dropping 0.1% from the previous year to 93.3%.

The county was the fifth most expensive market among the metropolitan regions in California but was one of the slowest for rent growth.

First drop since ’90s

The nation’s occupancy rate dropped to 92.2% in December, down from 92.9% in September, which meant that 10,000 apartment units were vacant at the end of 2008, RealFacts reported.

“It is getting to be more and more of a renter’s market rather than a landlord’s market,” said Caroline S. Latham, president of RealFacts. “If you’re a renter with good standing and good credit, you’re a desirable commodity.”

She described the county’s rental market as solid and healthy as well as a good place for people to invest; landlords are still able to make enough to maintain repairs.

Latham called the drop in rental rates significant, because it was the first such decline since the early ’90s. On the other hand, they didn’t go down by much. It’s not as if renters will be rejoicing every time they write the rent check, she said.

Tim Kephart certainly isn’t. A handyman from Santa Paula, Kephart said rents need to fall much more in order to be affordable.

“The rental market in this county is outrageous,” he said. “You’re paying $500 for a 10-by-10 room with a closet, and you’re sharing a bathroom with somebody. You may have laundry privileges; you may not. You may have room in the fridge; you may not.”

Kephart said he’d like to rent an apartment or studio, but renting a room is all he can afford. He’s looking to move to be closer to work in Newbury Park and says the maximum he can pay is $750.

Fewer people live alone

The good news for renters is that they have more selection and leverage to negotiate.

Some property owners are trying to lure renters by sacrificing big deposits, instead offering a $99 move-in special, Latham said.

That’s a surprising twist from a year ago, when weakness in the housing market seemed to dictate that rents would skyrocket as homeowners were squeezed out of their homes.

In areas that have been pounded by foreclosures, the rental market has been hit just as hard as the sales market, Latham said.

“It’s been far from a bonanza for apartment owners,” Latham said.

Instead of renting, many distressed homeowners are moving back with their parents or are relocating to less expensive areas outside the state.

“Fewer people are living alone,” Latham said. “That’s really the answer to all of this. Unemployment is rising, and even if it hasn’t affected you directly, it makes you nervous. A lot of people are taking steps to put themselves on sounder financial footing.”

In a down housing market, many homeowners typically try to rent their homes instead of selling, thereby increasing market inventory.

However, renting a home isn’t a viable option for people who are unable to recoup the cost of their monthly mortgage payment.

Still need places to live

While searching for a room to rent, Devin O’Neill of Ojai has noticed prices have dropped. Troubled homeowners trying to rent rooms in an attempt to hold onto their homes are willing to take less, he said.

“I wouldn’t call it considerable, but it is a noticeable difference,” O’Neill said. Like many renters, O’Neill said he’s willing to give up some space and independence to save money.

As home values plunge, the gap between the cost of renting and owning a home is closing.

Rents have softened at the higher end of the market; those paying $1,800 or $2,000 a month in rent probably have incomes, down payments and job security to make the transition to buying a home, Dyer said.

She’s also seen an uptick in vacancies in one-bedroom apartments as people double up in two-bedroom apartments, which has led to price softening to the point that property owners can keep small units fully occupied.

At the same time, there are pockets in the county where there is 100% occupancy and rents haven’t been reduced, Dyer said.

“People still need a place to live, and apartments still offer the most affordable housing option,” she said.

Wait and see mode

Dyer thinks the overall rental market might have more softening this year if job losses continue to mount. Even if that happens, she doesn’t think vacancies, currently at 5.8%, will surpass 8%.

That could be good news for property owners like Gilden, who has had a difficult time retaining tenants during the past two years.

She’s considered lowering rents because of worsening economic conditions, but she hasn’t acted upon it.

Right now, she’s in wait and see mode.

“It’s kind of like waiting for an earthquake to happen,” she said. “You know it’s going to happen eventually. You just don’t know how bad and how much it’s going to affect you.”