A low cost of living isn't always a good thing.
Nationwide, rents for apartments and other kinds of family residences are likely to rise by 3.6 percent this year, according to research firm REIS. That's a healthy pickup that indicates more people are setting up their own households, after moving back in with their parents or doubling up with roommates during the recession. Rising demand for rental properties could even boost the housing market eventually, since renters often decide that it makes more sense to buy a home than to turn more and more money over to a landlord every month.
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In some cities, however, renting remains a bargain. Sometimes that's because homes are cheap and it makes more sense to buy than to rent. But low rents can also reflect an oversupply of apartments and a high vacancy rate. Sometimes that's because the population in a given city is shrinking, or the economy is contracting. In other places, the core metro area is simply a lousy place to live, which drives people to the suburbs, where there are fewer rentals. Here are the weakest rental markets, according to REIS:
Las Vegas. Average rent: $814; annual increase: 1.3 percent; unemployment rate: 13.3 percent.
Sin City is still suffering from one of the worst housing hangovers in the nation, with a huge oversupply of homes that's keeping sale prices deeply depressed and rents down. Given the deep woes in the Vegas housing market and the city's high unemployment, it's encouraging that rents are rising at all.
Wichita, Kan. Average rent: $527; annual increase: 2 percent; unemployment rate: 8.3 percent.
A strong healthcare sector has helped keep Wichita's unemployment rate below the national average, but layoffs at Boeing and other aircraft manufacturers have softened the demand for rental units and other types of homes. That could change in the coming years, thanks to a huge new Boeing contract to build tanker jets for the Air Force, which is likely to bring hundreds of new jobs to the area.
Tulsa, Okla. Average rent: $595; annual increase: 2.1 percent; unemployment rate: 6.5 percent.
The economy is relatively strong in Tulsa, thanks to a diverse economy based on energy, telecommunications, finance, aerospace, and other industries. And the low cost of living makes homes affordable—which is one reason demand for rentals is weak. In this case, weak growth in rents may actually be a sign of a strong housing market.
Lexington, Ky. Average rent: $666; annual increase: 2.2 percent; unemployment rate: 8.4 percent.
This is another affordable city in which cheap homes lead many people to buy, keeping a lid on rents. Despite city budget woes, Lexington's economy is in decent shape, thanks to the stability that comes with being a university town. And a good outlook for jobs plus a low standard of living tends to draw young people.
Los Angeles. Average rent: $1,427; annual increase: 2.2 percent; unemployment rate: 11.4 percent.
If you can lock in cheap rent in this metropolis, do it now. L.A. real estate got clobbered in the recession, but the city is still growing, with an economy that's on the mend. Displaced homeowners could drive up demand for rental properties, and there's not much room to build, so supply is limited. Plus, a long recovery for home prices could make rental properties increasingly attractive.
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Orlando. Average rent: $887; annual increase: 2.3 percent; unemployment rate: 10.4 percent.
The city's woes include a sharp housing bust, a decline in the tourism industry as Americans recalibrate their spending, and a surprising net outflow of people from Florida. Orlando is in better shape than other parts of the state, but limited demand will keep rent increases low for the foreseeable future.
Miami. Average rent: $1,116; annual increase: 2.4 percent; unemployment rate: 10.9 percent.
There's an oversupply of housing, as in many other parts of the state, which is keeping sale prices depressed and rents low. But Miami should rebound since it's a gateway to Latin America—where the economy is growing handsomely—and a hub for many companies doing business there.
Jacksonville, Fla. Average rent: $816; annual increase: 2.5 percent; unemployment rate: 10.2 percent.
This East Coast beach town got heavily overbuilt and too dependent on construction, which has made it a laggard in the stutter-step economic recovery. Stable spending at nearby naval facilities has helped sustain the local economy, but that may end up vulnerable to federal budget cuts. That leaves a weak outlook for the whole real-estate market.
Buffalo. Average rent: $755; annual increase: 2.5 percent; unemployment rate: 8.1 percent.
There's a lot of qualified good news in Buffalo. The housing bust was mild—largely because there was no boom to start with. Unemployment is lower than average—but mainly because the old industrial economy has shrunk from its former size. So while Buffalo is enjoying a moderate recovery, there's no vigorous growth to spur new demand for rental properties.
St. Louis. Average rent: $749; annual increase: 2.5 percent; unemployment rate: 9.3 percent.
The Gateway to the West is a shrinking place, with an 8 percent decline in population over the last decade. And the recession forced the closure of several industrial facilities in the region. Washington University brings some stability to the city, but there's not much of a spark likely to trigger a robust rise in apartment demand.
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. Unemployment rates are for metro areas.