San Diego is in the Top 20 of Residential Rental Rates in the Country!

Rank City $/sq. ft* Rank City $/sq. ft*
1 New York $26.04
2 Boston $24.33
3 Honolulu $23.27
4 San Francisco $22.48
5 N. New Jersey $22.35
6 Stamford, Conn. $21.76
7 Nassau-Suffolk, N.Y. $21.05
8 Los Angeles $20.34
9 San Jose, Calif. $20.23
10 Orange County, Calif. $19.54
11 San Diego $19.19
12 Oakland, Calif. $17.66
13 Washington, D.C. $17.54
14 Central New Jersey $16.54
15 Philadelphia $15.40
16 Riverside-San Bernardino, Calif. $14.81
17 Baltimore $13.91
18 Chicago $13.57
19 Miami $13.49
20 Sacramento, Calif. $13.16
Pockets of strength in a slow market

“Strong” isn’t the first word that many industry insiders would use to describe the nationwide rental market over the past several years. “Since the recession of 2001, the apartment industry has recovered rather slowly,” says Mark Obrinsky, chief economist for the National Multi Housing Council, a trade group based in Washington, D.C.

Although the recession officially ended in November of that year, demand for apartments kept dropping for months, even years, Obrinsky says. Vacancy rates only recently came back to the long-term national average of about 5%. And the rentals market hasn’t been helped by exceptionally strong real estate sales.

“We had fewer people coming into apartments because of the job market, but the same number of people leaving (to buy homes),” he says.

But the rentals market, like the overall real estate market, varies greatly from region to region and neighborhood to neighborhood. Even in a down apartment market, some cities remained extremely expensive.

To discern the priciest rental markets in the U.S. today, we turned to San Francisco-based real estate research firm Global Real Analytics, which publishes the National Real Estate Index. The company collects rent information for studio through three-bedroom units in apartment complexes around the country and provided its most recent data on the metropolitan areas with the highest annual rents per square foot.

The usual suspects

Not surprisingly, most of the places that made the top 20 are also those with very high sales prices.

New York topped the list, with an average price of more than $26 per square foot each year for high-end apartments, in the second quarter of 2005. That’s almost twice the national average of $14.53 per square foot. According to the latest data from local real estate brokerage Citi Habitats, the median rent in Manhattan for a studio apartment is nearly $1,700 per month. Looking for a little more space? Then crank your budget up to about $3,000 per month for an average two-bedroom pad.

Our list was dominated by California metro areas, from San Francisco to Los Angeles to Sacramento, and by long-established cities, such as Boston, Washington, D.C., Miami and even Honolulu.

“There are very few housing units available,” says Cheryl Kunimoto, president of Marie Hansen Properties in Honolulu, where the average annual rent per square foot is $23.27 for a high-end spread. “If you have a property that is competitively priced, it’s not unusual to have ten or more prospective renters.”

What makes these markets so pricey? The reasons vary. Metro areas, such as San Francisco, New York and Boston, not only remain desirable to live in, but they are also known in the industry as “barrier-to-entry” cities, Obrinsky says.

“In other words, even though there’s demand for a lot more housing units, it’s tough to get them built,” he explains.

In Manhattan, land is limited and mostly already occupied. In Boston, until recently rent control discouraged new building. And because there are so many historic areas, it takes a relatively long time to get a new building permit.

And then there’s California.

“It isn’t the fact of being in California per se, but it is those locations in California,” Obrinsky says. “San Francisco, Berkeley, Oakland is a bay. There’s only so much space that’s on and near the bay. Farther inland, it’s not cheap housing, but it’s less expensive than San Francisco.”

Demand, of course, also plays a role in pricing. “There are more companies relocating new employees into the area, and that has had an effect on the rental market,” says Edward Bate, a real estate agent with American Marketing Systems, in San Francisco.

Why rent at all?

So if prices are so high in these places, why rent if you can afford to buy? Tenants have some very good reasons, from wanting the money to work for them in other investments to thinking real estate prices are going to decline. Some are frustrated by the pace — and the even higher prices–in the housing market.

“Something comes on the market, and it’s not the asking price, it’s the starting price,” says Deacon Hoy of Citi Habitats in Manhattan. “Suddenly you have 20 people bidding on it. People come here thinking they are going to buy something for $600,000 or $700,000. They’re finding that what they had in mind is going for $1.2 million.”

And in many cases, real estate prices have climbed so high that they can have a better standard of living as a renter. “A lot of people have purchased property, but I find that a lot of people end up renting, because they’ve been priced out of the housing market,” says Marie Hansen Properties’ Kunimoto. “They can get more for their money if they rent. They can afford to live in a $1 million home, but they can’t buy a $1 million home.”

Edward Bate observes that in San Francisco, people who have been priced out of the most popular neighborhoods are buying in outlying areas, such as the Sunset and Richmond Districts. That is driving up purchase prices, but rents are still lagging a little behind — a potential bargain if you’re looking to rent.

Then again, when you’re talking about the most expensive rental markets in the country, a bargain is defined in relative terms.

— Sara Clemence,


The median price of an existing, single-family detached home in California during August 2005 was $568,890, a 20.1 percent increase over the revised $473,520 median for August 2004, C.A.R. reported. The August 2005 median price increased 5.2 percent compared with July’s $540,900 median price.

“While fixed mortgage interest rates have not increased, adjustable rates have risen in reaction to the Federal Reserve and a more general increase in short-term rates,” said C.A.R. President Jim Hamilton. “Since more buyers are relying on adjustable-rate mortgages to finance the purchase of their homes, buyers may be moving more quickly to make the home purchase decision in anticipation of future rate increases. This is adding more pressure to the price of a home.”

Closed escrow sales of existing, single-family detached homes in California totaled 632,240 in August at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR® associations statewide. Statewide home resale activity increased 7 percent from the 591,150 sales pace recorded in August 2004.

San Diego’s real estate assets director resigns under pressure

Yahoo San Diego Real Estate News Alert!
William Griffith, the city of San Diego’s real estate assets director, has submitted his resignation effective Oct. 28. Griffith has been criticized for his department’s handling of the Gibbs Flying Service lease at Montgomery Field and how the department accounted for its real estate assets.

More info>

Last Week in the News – Economic Update!

The Federal Reserve raised the federal funds rate (the interest that banks charge each other) another quarter point to 3.75%, on September 20. It was the 11th such increase in the past 15 months, and brought rates to their highest level since August 2001.

Construction of new homes edged down in August for a second straight month, the Commerce Department reported September 20. The construction of new homes and apartments dropped 1.3% last month after a decline of 1.5% in July. Although the decrease marked the first back-to-back declines in housing starts in 17 months, new construction is still on pace to reach its highest level since 1973.

The Composite Index of Leading Economic Indicators, a widely followed gauge of future economic activity, fell 0.2% in August, the Conference Board said September 22. Dragging the index down was a decrease in consumer expectations.

The total number of Americans seeking jobless benefits rose to 432,000 claims from 424,000 the previous week, the Labor Department reported September 22. Hurricane-related claims reached 214,000, with some private economists predicting that a half million people or more will have lost their jobs when Katrina’s final economic toll is calculated.

Next week look for updates on existing home sales on September 26 and durable goods orders on September 28.

San Diego’s housing market depends largely on continuing economic growth!

Sun Sep 25, 6:01 AM ET – Yahoo News Alert!

Despite analysts’ predictions that the San Diego real estate market is a bubble on the verge of bursting, economists at the California Association of Realtors Expo said it will remain healthy as current prices are sustainable and more growth is on the way.

“House prices in San Diego have risen much more rapidly then in the U.S.,” said Richard Green, professor of real estate finance at George Washington University, adding this is often an argument for the housing bubble belief. “But, I think we can explain housing prices in most places, and if they’re explainable that means we don’t have a bubble.”

Green said home prices in San Diego are affected heavily by land use regulations, as California has the most stringent. “Land use regulation does more to explain changes in prices across the country than any other phenomenon,” he said.

These land regulations along with the continuous demand for housing in San Diego will result in sustained prices.

“Everything is economics 101; supply, demand, interest rates,” said Gregory Smith, San Diego County assessor. “We have a limited supply in San Diego; however, everyone wants to come to here so the demand is very strong. That’s why we’re doing so well.”

Green agreed that the constant demand and limited supply — a result of land use regulations that make it increasingly difficult to build residences — allow San Diego to be an exception in the national market.

“If they’re (cities) desirable places to live, … it can explain a sustained high house price for years to come,” Green said.

Besides the strong demand, Jack Kyser, senior vice president and chief economist of the Los Angeles County Economic Development Corporation, said the San Diego market prices will sustain because of the strong state and city economy, which can be attributed to a low unemployment rate, increased regional growth, low hotel vacancy rates and increased retail sales.

Despite these reasons for sustainability, others think San Diego will suffer a similar housing bubble burst as it did in the early ’90s. However, Smith said there are distinct differences between now and then, and this eliminates the chances of a burst occurring.

In the early ’90s interest rates were 8 percent to 9 percent, whereas last week they were 5.7 percent. The Desert Storm conflict in the Middle East also created a surplus of vacancies in the city, and manufacturers began to leave the state. Now, however, there is job growth.

“The other thing is we did have a bubble in the ’90s,” Smith said, noting that a bubble to him represents a time when there is unsold inventory, which currently is not the case.

Developers are also different now than in the ’90s. Back then they built huge subdivisions of 100 to 150 homes because of economy of scale but then wound up with unsold homes when interest rates rose. Developers learned from the experience and now usually release five to 10 homes at a time for presale. The only area that poses a problem is condominiums because sales can’t be phased.

Since the ’90s can serve as no comparison to present conditions, the economists forecast one evolving change in the market.

With California experiencing a population growth of 2.5 million people from 2000 to 2004, according to Kyser, homebuyers’ demographics are changing, which will affect homebuilders.

“Currently in San Diego the most common surname for buying property is Garcia,” Smith said. “Seven out of the top 10 buyers in San Diego county had Hispanic surnames. … That is the future market.” Smith also noted this will equate into a demand for larger homes, as Hispanics typically have larger households.

The assessor also expressed optimism about the future market.

“Overall we’re in a very good situation; I don’t think interest rates will be going up,” Smith said. “Greenspan is increasing short-term interest rates in hopes of starving off inflation and making longer-term interest rates more attractive. This is still an unbelievable situation. We have a buyers’ market with historically low interest rates.”

Send your comments, thoughts or suggestions to