Rosewater

Bay Area tenants saw further rent decreases in the fourth quarter of 2003 despite earlier evidence that prices -- which have tumbled dramatically during the last three years -- were poised to rise. ... Those concessions seemed on the verge of subsiding in the second and third quarters of 2003, according to Latham. That's when occupancy rates in some locales edged toward the 95 percent level -- usually a turning point when landlords take the opportunity to boost prices. Although occupancy rates in San Jose remain closer to 93 percent, in San Francisco and Oakland they hover near 95 percent. However, prices dropped further in the fourth quarter, due in part to anemic job and income growth. "There's a strong parallel between (rent) growth and apartment demand curve," said Latham. "And when you realize that in October there weren't any new jobs, and that we actually lost jobs in the Bay Area, that put a damper on the market." One landlord has an alternate theory: Low interest rates are enticing renters to buy homes. ... Simply put, many housing experts say rents and home prices should generally move in the same direction, in part because the same economic drivers -- unemployment and shrinking income -- affect both. In addition, the price of any asset -- whether it is a stock or a condo -- should reflect its future income stream. As such, the price of a home should reflect the income if the property were rented. Therefore, the divergence between rent and home prices doesn't make any sense, the experts say, and could mean that home prices are too high and due for a correction. "When you buy a house, you're placing a bet on future economic growth," said Ed Leamer, director of the UCLA Anderson forecast. "But when rents are declining, as they are in the Bay Area, then placing a bet on economic growth isn't a good idea."