If you are a renter who has been cashing in on lower rents and rental concessions, you should retool your housing strategy with a long-term lease to lock in today's rents or with a short-term plan to buy a home.

Home prices may be poised to take off, and two new apartment housing industry reports indicate 2004 could bring the beginning of the end of incentives landlords have been using in recent years to woo renters.

In Santa Clara County, the $568,000 median price of homes in closed sales in December 2003 was as close as it has ever been to the record median high of $578,000 set back in May 2002, according to Creekside Realty broker/owner Richard Calhoun's Bay Area Real Estate Market Newsletter, a compilation of sales statistics from the area's multiple listing service, RE InfoLink.

Condos, frequently the first-owned home of choice among renters seeking move-up affordability, are fast moving out of reach.

The median price of condos, also originally peaked in May 2002, at $360,000, but continued to move up to $364,000 by August of last year. By December 2003, the new record median condo price was $370,000, Calhoun reported.

Forecasts of economic recovery, job growth, housing shortages, greater demand from immigrants and falling affordability in the home-buying market could all combine to spawn higher rents and fewer concessions.

"Even in San Jose, the only market to experience a fourth-quarter decline in rents of more than 1 percent, the rate of decline was significantly less than that of a year ago. While rents have yet to rebound in most markets, the worst seems to have passed," according to William Ktsanes of Novato-based RealFacts, an apartment market research firm that monitors apartment markets in the western United States.

The average monthly rent of all San Jose properties RealFacts tracks—studios to three-bedroom townhomes in complexes of 100 units or more—peaked at $1,746 in 2001 in San Jose. By the end of 2003, the average had fallen to $1,319 per month. However, while rents fell for three consecutive years following 2000, occupancy rates fell for only two years and remained steady at 93.2 percent during both 2002 and 2003—an indication falling rents and concessions may be about to end, according to RealFacts' fourth-quarter 2003 report.

"As property managers struggle to increase occupancy and maintain asking rents, lessees are offered an array of concessions such as lease-signing bonuses; free weeks and months rent; and added amenities such as washers, dryers and free parking. In the hardest-hit rental markets—such as those of Northern California—many property managers offer potential tenants both reductions in asking rents as well as significant concessions that lower effective rents," Ktsanes said.

That may not last beyond 2004.

Marcus & Millichap's National Apartment Report says asking rents are due to rise nationwide by 1.5 percent, and even hard-hit markets like San Jose could begin a return to rising rents.

It also forecasts an end to rising vacancies and falling rents in 2004, trends that are often precursors to rising rents.

"Concessions will remain in force with effective rents (due to concessions) forecast to run approximately 6 percent below asking rents," the report says.

Marcus & Millichap's findings are based, in part, on these market conditions:

* Conserving cash during the economic downturn, many young adults moved back home or doubled up with others. As the employment picture brightens, many who retreated will seek new homes and increase tenant demand.

* Asking rents were flat in 2003, but a reduction in concessions in the final months of the year allowed for a 0.2 percent gain in effective rents. Sizable rent growth is not expected until 2005.

* Apartment housing construction activity will pick up in San Jose, but perhaps not enough to meet the demand. Builders in the San Jose market are projected to deliver only 2,000 new units in 2004. That's short of the 3,300 units delivered in 2002, and only slightly more than the 1,500 marketed in 2003.

In its forecast, Marcus & Millichap points to specific rental pressures that could come from job growth already evident in the biotech industry.

"Those seeking to capitalize on potential expansion in this sector should focus on areas including the Highway 101 corridor and Milpitas. Class C properties in these areas are likely to appreciate quickly, as the industry will also require service-level workers who will be in need of rental housing," the report says.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for
Willow Glen Resident.