Rent Increases Likely to Taper Off Soon

It’s getting more and more difficult for the local press to pretend like everything is roses, bubbles, and white puffy clouds in the local housing market. So, what’s the next best thing to pumping housing? Spreading fear about renting!

Renters have been saying loudly that rents are rising steeply and vacancies are few.

Now comes fresh proof they’re right.

Average rents in the region jumped almost 2 percent between the first and second quarters of this year and are now 9.1 percent higher than this time last year, reports apartment analyst Tom Cain, of Cain Inc. He surveys 149,000 King and Snohomish county apartments quarterly.

The current two-county average is $1.14 per square foot, or $967 per unit.

Meanwhile, the vacancy rate continues to drop, now at 4.24 percent for the two counties. Anything under 5 percent is considered tight.

“The rental market will continue to tighten as a result of job growth, in-migration and a combination of an insufficient amount of new construction to fill demand and apartments leaving the rental pool for conversion to condominiums,” says Cain, publisher of Apartment Insights Washington.

Obviously it would be stupid of me to try to argue that rents have not increased. I will however point out that while the article seems to imply that 9% per year increases are somehow indicative of a new trend, and likely to continue consistently for years, this is likely not the case. Rents are directly tied to wages. You can’t go out and get a 0%-down, I/O-ARM to finance your rent.

Rents are experiencing a temporary spike due to the extended period of stability and even decreases during and after Seattle’s post-dot-com economic downturn. Unless wages have been and continue to increase at 9% per year, rents will most likely jump a bit, then increases will fall in line with incomes.

To support this premise, I pull this statistical standby out of the vault:

Notice how from 1990 to 2000, rents and incomes tracked (on average) perfectly? Also notice that from 2000 to 2005, rents lagged a bit behind incomes. Incomes experienced 5 years of 2.7% annual increases (average), for a total increase of approximately 14.2%. Rents’ total increase was 3.5%. Assuming that income increases hold mostly steady, it will take just two years of 8% rent increases for rents to catch up to incomes.

Put another way, eight quarters of 2% rent increases would bring rents back in line with incomes. Since early 2006, rents have been rising fairly steadily at roughly 2% per quarter. That’s six quarters, out of the eight required for rents to catch up. Remember, rents are not dictated by what landlords wish they could charge, they’re dictated by what the market can bear, i.e. – what people can afford to pay based on their income.

In all likelihood, rent increases will have tapered off significantly by this time next year. But don’t expect to read an article that comes to that conclusion in the Times any time soon.

(Elizabeth Rhodes, Seattle Times, 07.15.2007)

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    The Tim says:

    Sorry this got posted so late today. I’ve been out of town, and had planned to get up a bit early to post it this morning before heading out. Unfortunately, if you want to wake up on time, it’s best to set your alarm for AM, not PM.

  2. 2
    rose-colored-coolaid says:

    What’s most disappointing about your chart Tim is that at 2.7% wage increases this millenium, wages have actually fallen behind inflation. And I don’t mean real inflation, I mean wages have fallen behind the fake inflation that the Feds report.


    Maybe that’s how we are special in Seattle. Starbucks salaries!

  3. 3
    Alan says:

    I think all of the corporate places read that rents are going to go up so they all raised their rents. The private owner rentals don’t seem to be much higher to me.

  4. 4
    mike2 says:

    I know the feeling. I was up at 2 AM PST to catch a flight at 4:45. The return to the west coast has it’s benefits but the loooong days don’t feel so good.

  5. 5
    sniglet says:

    Don’t forget that one big reason for rising rents could be that increasing numbers of people are deciding to rent rather than pay the exhorbitant prices of Puget Sound real-estate. That and the trend to condo-conversions which has been taking rental properties off the market.

    There is a good chance that rental rates will reverse and start dropping within a year. This is exactly what happened (i.e. rising rents) in other bubbly markets just before they turned down.

    Ironically, rising rents may be the final indicator that real-estate prices are about to take a dive.

  6. 6
    misty buss says:

    Our landlord gave notice of a 6% increase for next year, we refuse to accept and will leave this house next week (lease is up). Kirkland (present local) has limited rentals available. I wonder if landlords are selling properties right now. We will give Mukilteo a shot. It is less pretentious, $400 less per/mo. and a much nicer property. Muk SFH sell for what looks reasonable coming from Kirk/Bellevue.

  7. 7
    Ouch says:

    MSM stories like this one by Rhodes may be having an effect on raising prices by private owner rentals. A neighbor told me today that her landlady has raised her rent (4 bedroom, 1-yr. old SFH) from $1525 to $1675, citing newspaper articles as her source that rents are rising all over. The neighbor decided to stay and pay the increase because she doesn’t feel like moving or buying right now. Her landlady indicated that when the next lease is up that she would offer to sell the house to the tenant. Neighbor says that she has no interest in buying said house, period.

  8. 8
    Buceri says:

    Yeah; I can see quite a few rental properties (private owners) coming up with increases based on the article (a few will be stupid enough to admit they are doing it “because I read it on the paper”). The times will be getting some hate mail in the next couple of months.

  9. 9


    Its like following the lemmings to the wolf jaws when you take MSM’s advice and their OVERPOPULATION agenda’s news’ slants.

    Here’s a great example: A couple years ago, President Bush had a State of the Union and told us we needed to privatize Social Security [he really meant add low wage OVERPOPULATION to America, as its is the real MSM Conservative slavery secret], because we were all living longer. Sooooo….not believing a word coming from Bush’s mouth, I looked up mortality rates in the Census Bureau website. Guess what….not only are we living significantly shorter lives in America since the mid-90s [about a 4 year decrease], it hasn’t been this bad since the 60s. The CDC came out with mortality statistics indicating the opposite conclusions of the Census Bureau. Which government agency’s mortality statistics does MSM preach? CDCs.

    Two weeks later [I mailed the Adobe Census Bureau results documenting SIGNIFICANTLY higher mortaliy rates lately to friends, so the evidence is clear and they saw it too], the Census Bureau findings were WIPED CLEAN, nonexistent….

    You think we get TRUTH from this Orwellian MSM, controlled by FAR RIGHT FASCIST CONSERVATIVE CORPORATIONS? Hades no!!!!

    The FEAR factor is always used against us too, just like this RENT INCREASE SCARE. Another FEAR FACTOR MSM uses is “BUY NOW BEFORE ITS TOO LATE”.

  10. 10
    mesathinks says:

    Our rent in Kirkland on a cheesy remodeled 2bd went from 985 to 1405 (1305 if we had re-signed). Rental houses on the east side went from a middle/low (livable 1500 sq ft 3bd 60’s-80’s rambler) of 1400-1600 to 1700-2000 from last summer to this summer (in market for couple of months both summers).

    Rents have definately spiked :-).

  11. 11
    tacomarenter says:

    It’s not surpising me that rents in Seattle are going up. I kept hearing from people living in Seattle what they were paying and I was always surprised they weren’t paying much more than a comparable place in Tacoma. Example: A 4 bedroom house on the North End (read: safer than most Seattle neighborhoods) is going for $1100 on Craigslist and a 3 Bedroom home in South Tacoma (read: comparable to Capitol Hill for crime) is also going for $1100. huh? The market hasn’t quite figured out what to charge for rents apparently…

  12. 12
    Nolaguy says:

    I rent a newer (2001) 2bd/1ba apartment that is one block from Pike Place Market.

    My rent was increased 3%.

  13. 13
    happy renter says:

    I’m glad my landlord lives in Los Angeles and isn’t influenced by this MSM garbage.

  14. 14
    MisterBubble says:

    There’s no doubt that rents are going up. The question is, what happens when the landlords hit the hard ceiling of affordability? Will people just suck it up and start to pay ever-increasing percentages of their income for housing? I don’t think that will happen, but landlords are not known for their willingness to negotiate downward. I predict much teeth-gnashing and wailing from the landlord class in the coming years, as reality directly conflicts with the myths spun by the likes of Lizzie Rhodes.

    My own landlord had the guts to tell me that he “felt bad for renters”, because of the rent increases that he was going to “have” to impose over the coming years. Yet when I lightly suggested to him that the giant condominium complex next door might not have buyers (and that this might impact his “need” to raise rents), the fool spouted off the usual MSM talking points: Strong Jobs, local millionaires, blah blah blah….

    I nearly punctured the tires on his Mercedes as I left, that day.

  15. 15
    Finance says:

    The Tim – Just as you have mentioned in this blog that bubbles tend to continue…until they “bubble over” and become exaggerated. Thus as home price appreciation should have slowed back in 2005 they haven’t…until it just recently has started to show up.

    Is the trend with large Rent increases going to continue on longer than a few years…YES they probably will. With any bubble such as rent rates, there most likely will be several more years of above avg rent increases. Its just a fact of life with any boom/bust cycle.

    In other overheated markets what was the avg lag time in rising rental rates to the slump of house appreciation? DJ you do a fantastic job with graphs! My prediction is that rent will increase in the 5% to 10% range for the next two years (or until this region experiences a recession, which I predict will happen in about two years)

    In an article I read about the vacancy rates in some parts of Seattle are 1.88%. Also after reading an article by Dupre & Scott (apt specialists) they mentioned that the number of apt units coming online in the next few years is going to be less than initially planned due to several condo & commercial buildings build on property instead. This cant be good news for those looking for lower rent increases…as I always say it comes down to SUPPLY & DEMAND. Right now it looks like people are demanding rentals. A friend recently had to overbid the rent rate to get a place by $50/month (she said it was about $50/mo less than the next door place so it worked out ok for her), think rental bidding wars are a dream…think again (said with some sarcasm).

  16. 16
    redmondjp says:

    My neighbor has the contracts to paint interiors of many of the apartment complexes around Microsoft (so he’s continuously working on empty units in-between renters), and he says rents are going up, with some units (probably those with condo-like “upgrades”) going for as much as $1500/month now. You used to be able to rent a decent 3 bedroom rambler on the Eastside for that amount.

  17. 17
    Finance says:

    misty buss – How much more money will you spend driving to work now that you are living further way from work…harming mother earth, lol.

    Also how many more hours are you going to spend in your car each day…what is your time worth to you?

    I googled my new job I start next month downtown Seattle and is going to be 5 blocks (0.15 miles) from my condo, woo hoo! Or about a 5 to 7 min walk to work (depending on cross walk signals). No more driving to Redmond for me!

  18. 18
    Mike2 says:

    I’m not convinced that “rents” can form a bubble, since there is really no way to speculate on rental contracts per-se.

    Likewise, it is still rather difficult for the “average” renter to use debt to finance their rent for repayment at some later date.

    Most of the credit related causes of the housing bubble have fairly muted effects on rental rates and I have a hard time seeing how the market could shift towards either trading of “rental options” or lease agreements that allow only partial payment of rent in the short term.

    With that said, if there is some fundamental change in how people pay rent, such as moving to credit cards en mass, it could be possible to see unsustainable bubble like characteristics in the rental market.

  19. 19
    bighead says:

    From what I have seen, I think one cause of rents going up is the efficiency of craigslist.

    When I was first shopping for an apartment 5 years ago, there were a lot of great deals that were overlooked because they weren’t advertised or they only had 2 lines in the newspaper. When I was forced out by a conversion last year, I noticed that walking around to find a good deal was pointless and anything that looked great on craigslist was gone in an hour.

    I figured that the increased efficiency of finding renters was killing the cheaper units, because even lazy managers and landlords could jack the prices up.

    It doesn’t help matters that most people renting out houses/condos ask for so much that they don’t register on the radar. Maybe when the desperation sinks in, craigslist will have the opposite effect.

  20. 20
    CCG says:

    To have a rent bubble you’d need a way for losers to rent way beyond their means. Maybe that’s something for Bush and the Fed to look into, since we need another bubble to replace this one pretty damn quick. Sorry, food and energy bubbles don’t count. Voters don’t seem to like those nearly as much as housing and stock bubbles.

    As for the rent scare, this is at least the dozenth time in the last year that I’ve seen this non-news piece of propaganda in one of the local RE shill rags (formerly known as the P-I and the Times). Too bad I have a landlord who can think for himself. So sorry.

    To paraphrase Derek Bok, if you think renting is expensive, try buying into a deflating bubble.

  21. 21
    Joel says:

    Sadly our apartment rent will be going up about 10% due to massive remodeling. Our lease is up in August so we’ve been looking around at renting a house in our area. It may cost more, but at least we’ll be getting a lot more (front/back yard, 2 car garage, 1.8x the s.f.). I’ve never rented a house before, so does anybody have advice or looking for and renting a house?

  22. 22
    MisterBubble says:

    “With any bubble such as rent rates, there most likely will be several more years of above avg rent increases. Its just a fact of life with any boom/bust cycle.”

    Sigh. Listen, “Guru”: LANDLORDS CAN’T CHARGE MORE FOR RENT THAN PEOPLE CAN AFFORD TO PAY. There is no way to speculate on rent. There is no options market, no rent-backed securities, no derivatives. Landlords don’t take credit cards, and people can only over-extend, or move to a cheaper place. Housing is an inelastic commodity, but it isn’t a rock; there’s a hard upper limit to what people will pay.

    “In an article I read about the vacancy rates in some parts of Seattle are 1.88%.”

    That was in the linked article, genius.

    “As I always say it comes down to SUPPLY & DEMAND. Right now it looks like people are demanding rentals.”

    Holy crap, man. Someone actually hired you? (As a janitor, right? Right?)

  23. 23
    sniglet says:

    Don’t be so sad and morose, fellow bubble-sitters! Instead of lamenting the recent rise in Puget Sound rents we ought to be rejoicing in the knowledge that this increase is just the proof of an impending real-esate price decline we have been waiting for.

    To put it another way, if rents were declining we would need to be worried about the bubble dragging out for much longer (i.e. because fewer people were wanting to rent, etc).

    I would much be paying higher rents rather than own a home that was dropping in value.

  24. 24
    peckhammer says:

    I am wondering what effect falling sales prices and rising inventories will have on the rental market?

    We may be able to watch it play out with our former bubblicious, immune to the housing slump sister city known as Portland. A recent report from the Oregonian said, “The Portland-area housing market continued its slow drift downward in June. The median home price for the Portland area dropped to $295,000, from $297,000 in May, according to the Regional MLS. That marked the first May-June decline since 2000, and indicated to economists who follow the local market that housing is weak and could become weaker through the end of the year.”

    “After striding past the national housing slowdown for about a year, the local housing market is showing signs of losing its stamina. Rising inventories suggest sellers have lost leverage, and the widespread exit of first time buyers and investors have cut severely into demand.”

  25. 25
    misty buss says:

    Finance,FWIW we work from home. No commute for this couple. We really need a flat yard for our children. We found it in Mukilteo.

  26. 26
    Old Ballard says:

    Have Seattle rents hit the upper limit?

    At $18.02 an hour I pay about 45% of my total take home pay in housing cost ($945 month.) 36,000 a year is a joke in todays market. Sadly I’m alot better off than everyone I know. Some of my friends are paying well over 55% of their income on housing.

    There is a braking point for those of us who are not Dotcomers.

  27. 27
    misty buss says:

    Finance, have you tried to run to Redmond Target lately on 85th? Just a trip to Trader Joe’s in Totem Lake can take an hour (3miles from my house) you can’t get out of the parking lot with your JOJO’s and Charles Shaw Chardonnay (I’m going to need a drink when I get out of this traffic) due to cross traffic. Kirkland is now permitting residents to sell off half of their yards to allow for another house to go up. Kirkland is looking at a proposal to build up to 8 floors high at Park Place in central Kirkland, condos I presume. There are no plans for light rail, no new roads nothing but high density living with no plans for how people are going to move around in here.

  28. 28
    Orion says:

    Slightly off topic… tonight during the KOMO newscast I saw a commercial with a wife telling her husband that there were lots of houses on the market and it was the right time to buy. “What are we waiting for?” she harped as the camera cut to the husband who had turned into an old man in his armchair. They then promoted their website which points to a page on the Master Builders Association website. I smell desperation. The couple was not as grating as the infamous “Suzanne researched this” couple, this commercial was obviously locally produced and not very slick or professional.

  29. 29
    emcityjill says:

    I wonder what effect steeply increasing rents has on a city’s economy?

    Tenant rents for commercial properties are going up too. If I were a business owner, and suddenly money was more expensive to obtain, the dollar was worth less, consumer spending dropped, the economy started hitting the skids, and for the biz to survive I have to tighten the belt…I’d be taking a long, hard look at operating costs and see where I could snip out dead wood. Including rent.

    Anybody with more finance or rationale experience have other perspective on this?

  30. 30
    Alan says:

    Old Ballard, The “dotcommers” aren’t doing so hot either.

  31. 31
    rose-colored-coolaid says:

    emcityjill, moving is one of the last things you would do in that case. Moving means your regulars can’t find you, and the lost income from confusing your regulars will more than offset the difference in cost.

    More likely, you go on a hiring freeze, or even let some people go.

  32. 32
    Buceri says:

    Article on MSN Real Estate section – riskiest markets to buy in the next 2 years.

    “Even where PMI found relatively low risk for dropping prices, sales have slowed way down. In Everett, Wash., in the Seattle-Bellevue-Everett region with a 34.3% risk of lower prices in two years, homes are sitting on the market an average of 59 days before selling, says Susan Funk, agent with Keller Williams Realty. “Last year, you knew you were overpriced if you did not have offers within the first 10 to 14 days,” Funk says.”

  33. 33
    Grivetti says:

    Rhodes is a one-trick pony. She’s been trotting this tired re-hash out about every three months. Again, no analysis, no national phenomena reported. Increased rental rates are due, in large part to condo conversions… and now the inventory in condos is spiking… hmmm, wow, what a coincidence!!

    After sellers get realistic, (although never underestimate the stupidity of large crowds), they’ll realize that in order to rent their ‘investment’ property, they’ll have to drop the rent price and we’ll see the “conversion-reversion” phenomena that’s happened in EVERY OTHER MARKET!!

    That’s right, EVERY OTHER MARKET! I know, its hard to imagine, yes, we too could become another Boston, D.C., San Diego… Shocking I realize.

  34. 34
    joe says:

    Rents in seattle are already ridiculous. They will fall as will the economy.

  35. 35


    See the proof:

    Now read the truth in part that contradicts MSM lies from the National Association of Realitors:

    The National Association of Realtors, on July 11, reduced its sales forecast for this year for a seventh straight month and projected that purchases of single-family homes will probably fall in 2008 to their lowest level since 1995.

    The rest of the Dr. Roubini URL:

    When MSM says North, it probably means South!!!!

    Thank God for blogging and talk radio or we wouldn’t get any decent news. Thom Hartmann (a REAL LIBERAL Democrat against far right Conservative Fascist OVERPOPULATION) is on AM 1090 Air America every weekday at about 9am to 12pm and is my favorite talkshow host now. He is brilliant.

  36. 36
    explorer says:

    Bighead is also on to something. I have been looking for new diggs for two months due to a conversion, and have similar observations.

    Without some form of “economic eviction” protection in the form of rent controls, and conversion restrictions e.g. limit on numbers, enforcable affordable unit percentages, zoning changes, etc. This will continue. By the time it hits the wages wall, there will be few middle income folks left to take advantage of it.

    I’m not convinced that there will suddenly be large numbers of people moving back en masse, but I hope I am mistaken.

  37. 37

    […] I said when last quarter’s report came out, the current trend in rising rents is entirely predictable and to be expected. As home ownership […]

  38. 38

    […] that 17 months ago in response to one of the all-too-common rent-increase scare-mongering articles, I made the following prediction: …rent increases will have tapered off significantly by this time next […]

  39. 39
  40. 40

    […] Excess inventory and falling home prices are combining to force down rents. This is pretty much exactly what I predicted would happen once the market cooled off, although the trend is definitely being exaggerated by the brutal economy. In 2007 when the local press was pushing reports about rentals being “increasingly scarce and more expensive,” warning that “rents are rising steeply and vacancies are few,” and claiming that the “housing slowdown is expected to send rents higher,” this site was alone in calling for rent increases to taper off. […]

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