Some Southern California homeowners, who are on the verge of foreclosure, are looking to the rental market for assistance, and they are finding that monthly rents are on the decline, according to an article from the Los Angeles Times.
Southern California rents peaked at $1,501 in the third quarter of 2008 after 12 years of consecutive gains. 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 doesn't include homes converted into rental units or smaller apartment buildings.
Some lenders and policy experts are looking at the rental market as a tool to keep more foreclosures off the market.
Mortgage titan Fannie Mae recently announced a program that would allow homeowners who are foreclosed upon to rent back their properties at market rates. Another proposal being considered by the Obama administration would encourage banks to sell distressed properties to investors who would agree to rent the home to the previous owner.
The decline in prices marks a significant reversal from the boom years, when rents increased as people flooded into the Los Angeles area, attracted by a diverse economy. Now many of the region's key industries -- construction, trade, manufacturing, tourism and entertainment -- are reeling. Los Angeles County's unemployment rate soared to 12.8% last month, up from a revised 12.6% in September.
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. In some of the hardest-hit areas, particularly the Inland Empire, he said, he is competing with investors who are renting out condominiums and homes, undercutting market rates.
Although the drop-off in rents is a boon for some, it's also a grim indicator, underscoring just how severely the recession has struck Southern California households. The low rents are likely to continue if lenders step up their repossession efforts.
"The fact that rents are coming down is of course favorable to those who need to rent," said Stuart Gabriel, director of UCLA's Ziman Center for Real Estate. "But it is an artifact of larger economic weakness, and that larger economic weakness is not a good thing."
As the economy continues to struggle throughout California, many Southern Californians are giving up on the American dream and settling for survival by renting.