[See the 10 weakest rental markets.]
Like home prices, rents fell nearly everywhere during the recession, as millions of people moved in with parents or found roommates to cut their housing costs. But with the gradual improvement in the job market and the overall economy, grown kids are finally waving goodbye to their parents and many others are moving into a place of their own. That's pushing high vacancy rates back down, toward levels they were at before the recession—and sending rents back up. Research firm REIS estimates that rents will rise an average of 3.6 percent in 2011. In a few hot areas, like parts of Washington D.C., and New York City, rent hikes could exceed 10 percent.
That sounds like bad news for tenants, but it indicates that more people can afford the added expense, and that parts of the economy are getting back to normal. Eventually, higher rents could turn many tenants into buyers, since purchasing a home will start to seem like a bargain compared with sending a monthly check to a landlord. So rising rents today could signal a pickup in home purchases in the near future. Here's where rents are likely to rise by the most in 2011, according to REIS:
San Jose, Calif. Average rent: $1,635; annual increase: 6.8 percent; unemployment rate: 10.6 percent.
Proximity to Silicon Valley and a tight supply of real estate make San Jose the market where rents are likely to rise the most in 2011. Hot companies like Google and Facebook are priming the local economy, and the high cost of homes means renting is the only option for younger or lower-income workers. That's pushing rents up.
New York. Average rent: $3,038; annual increase: 6 percent; unemployment rate: 8.4 percent.
The financial industry is recovering and the overall economy in New York City is relatively strong, which has kept the city's unemployment rate below the national average. Plus, the high cost of owning makes New York a prime rental market, with about two-thirds of city residents renting their home. New York remains one of the few places in the United States where people are willing to pay a steep premium to live.
District of Columbia. Average rent: $1,521; annual increase: 5.4 percent; unemployment rate: 5.8 percent.
There's been no recession to speak of in the nation's capital, where the federal government is a huge industry of its own. In addition to federal workers, D.C. is filled with contractors, lobbyists, and trade groups that feed off the government sector. That has kept demand for all kinds of housing strong.
Greenville, S.C. Average rent: $677; annual increase: 5 percent; unemployment rate: 8 percent.
A low cost of living and a healthy concentration of companies like BMW, Michelin, IBM, Bank of America, and Bausch & Lomb have kept the economy humming in and around this "upcountry" city in northwestern South Carolina. Rents are cheap, so a fairly small hike is enough to land Greenville on the list of biggest percentage increases. That reflects an economy regaining strength throughout the south.
Portland, Ore. Average rent: $879; annual increase: 4.8 percent; unemployment rate: 9.6 percent.
Portland is known as a green city, and in recent years local officials have cleaned up the Willamette River and gentrified other parts of the city, making it more attractive to young professionals and other urban dwellers likely to rent. A regional economy driven by a blend of technology, service companies, and big employers like Nike seems to be on the mend.
Chattanooga. Average rent: $659; annual increase: 4.7 percent; unemployment rate: 8.2 percent.
Tennessee's fourth-largest city got a shot in the arm when Volkswagen decided to locate its sole American factory here in 2009, with the first cars rolling off assembly lines this year. A smattering of other companies has helped keep unemployment below the national average. And with a low cost of living to start with, a small boost in rents is enough to land Chattanooga on our top 10 list.
Orange County, Calif. Average rent: $1,586; annual increase: 4.6 percent; unemployment rate: 9.1 percent.
This affluent area south of Los Angeles got crushed in the real-estate bust, but rising rents may be an early sign of a rebound. Home prices remain relatively expensive, so for many younger people, renting is the only option. And since the county borders the Pacific Ocean, there's not much room for new building, which limits the supply of rental properties.
Houston. Average rent: $822; annual increase: 4.4 percent; unemployment rate: 8.3 percent.
Texas's biggest city follows the fortunes of the energy industry, which has been booming thanks to the surge in oil prices and the economic recovery, both here and overseas. Houston is also a growing city that's still attracting migrants from the north. There's plenty of room to build, but new rental units haven't caught up with demand yet, which is pushing rents higher.
Seattle. Average rent: $1,080; annual increase: 4.3 percent; unemployment rate: 9.2 percent.
Nearby Microsoft anchors the local economy, but Seattle also hosts a diverse set of technology and industrial companies that are leading a local recovery. There's also a fairly limited supply of properties—since Seattle sits on the coast—which should help push rents up. In some ways, Seattle is a subdued version of San Jose, the top city on our list.
Hartford. Average rent: $1,021; annual increase: 4.2 percent; unemployment rate: 9.3 percent.
The insurance companies that still drive Hartford's economy are recovering thanks to the strong stock market and a broader rebound in the financial industry. The housing market is still tepid, but rising rents suggest that a more pronounced turnaround may be coming for Connecticut's biggest city.
Notes: Rent figures are projected averages for all of 2011 and represent "asking" rent, which is the amount a landlord requests. That may be slightly higher than actual rent paid. Annual increases are full-year projections for 2011. Figures for the suburbs surrounding Washington, D.C. have been omitted but are similar to the D.C. figures. Unemployment rates are for metro areas, except for Orange County, which is county-wide.