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D.C. area's renters are caught in squeeze

Dec. 16 (Bloomberg) -- Daniel Mudd, chief executive officer of Fortress Investment Group LLC, discusses the outlook for investment in distressed assets. Mudd, speaking with Bloomberg Television's Margaret Brennan, also talks about the U.S. real estate market. (Source: Bloomberg)
By Dina ElBoghdady and Dan Keating
Washington Post Staff Writers
Tuesday, December 21, 2010; 12:07 AM

Rents in the Washington area have soared to the highest level measured in at least 20 years as an array of economic and psychological forces thrust people into the rental market after the housing sector tanked in the last half of the decade.

In this region, rental prices surged 22 percent in 2009 from a decade earlier, according to the latest inflation-adjusted Census figures. Rates jumped in part because 10,000 single-family houses that were occupied by their owners two years ago are now rental properties. Those houses tend to be larger and have higher rents than apartments.

People hunting for rentals are brushing up against bidding wars between potential tenants, resulting in rents topping $4,000 for modest homes in some of the area's most coveted neighborhoods. Those from more distressed areas who have come here chasing jobs find waiting lists, more stringent credit checks and rents triple what they left behind.

In local apartment buildings, rents jumped 8.2 percent -- about twice the long-term average -- to $1,643 this year as vacancies disappeared, according to a study to be released next week by Delta Associates, a Alexandria-based research firm. The area's vacancy rates are the second-lowest in the nation, after New York City.

"There's been a structural shift from owners to renters in this country in the past few years," said Gregory H. Leisch, chief executive of Delta Associates. "It's the most rapid shift I've ever witnessed in the 40 years that I've been in this business."

While the high foreclosure rate helped push more people into rentals nationwide, that factor was less influential in the Washington region, many economists said. Instead, the local rental market is thriving mostly because the area added jobs more quickly than the rest of the nation during the recession, luring newcomers who were unable or unwilling to purchase a home here.

The number of people in households that rent shot up 8 percent nationally but 12 percent locally between 2007 and 2009, Census Bureau figures show. As demand surged, rents climbed 3 percent nationwide and 5 percent in this region. The area's median rent last year -- $1,190 -- was the third-highest among the country's largest metropolitan areas, trailing San Jose and San Francisco.

Rental market is 'golden'

"The rental market is going to be golden for a few years," said Stephen Fuller, director of George Mason University's Center for Regional Analysis. "It's going to be the first winner. Then some of renters will become homeowners in two to three years."

Nash and Eric Holt, both anesthesiologists, hope to be among them. Before they got married, she owned a house near Boston, where she completed her residency, and he owned a condominium in Florida, where he was to be stationed with the Air Force.

After he got a job in Washington, they looked at upscale apartment buildings in downtown Bethesda but could not stomach paying $3,700 a month for the cramped spaces they were seeing. They turned to single-family homes so they could have more room and avoid paying to store their belongings.

"One day, we looked at four rentals and there were other people looking around in every home we walked into," Nash Holt said. "Many cars were pulling in as we were pulling out, and sometimes there were bidding wars."

The couple finally signed a one-year lease for a spacious Bethesda house with a yard large enough for their dog. Nash Holt said she realizes that the $4,500 they now pay in rent could easily cover a mortgage. But the couple, who hope to have children one day, wanted to learn more about area neighborhoods, traffic patterns and school districts before committing to a home purchase. "I don't want to buy in a rush," she said.

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