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Rents Climb 3.2% as Vacancies Drop to 4%

Rental rates increased 0.6% during the first quarter, according to data from 79 U.S. metro areas that was released Tuesday by Reis Inc., REIS -1.06% a real-estate research firm. While that was a little slower than the 0.8% rise in last year's fourth quarter, rents were up a hefty 3.2% from a year earlier and have risen 13% since rents began their upward trajectory in 2009.

And with vacancy levels falling, rents appear poised for further growth, according to Reis, which said the rental vacancy rate fell to 4% in the first quarter, down from 4.2% in the fourth quarter and half the level in 2009.

"Rents are at a higher base and still growing," said Ryan Severino, an economist at Reis. "They will likely keep growing for the next few years."

Rental pressure has been building for years, as rising demand has run into an undersupply of apartments. With employment rising slowly but steadily, more young people are forming households, usually by leaving their parents' residences or breaking off from groups of roommates.

At the same time, the cost of buying a home has increased dramatically during the past year as prices have rebounded and interest rates have risen from record lows. The median monthly home payment—including principle and interest—has risen 20% in the past year, said John Burns Real Estate Consulting. That has forced some entry-level buyers to continue renting.

Few markets are more challenging than California's Silicon Valley, where the twin forces of rising employment and a chronic housing shortage have sent rents skyward. Rents in the San Jose metropolitan area grew 1.1% in the fourth quarter to an average of about $1,724, the second fastest rise in the nation last quarter.

The burden of rising rents has fallen hard on young workers, who are more likely to be renting—or, in many cases, looking to get their own place after years of underemployment.

Young people have seen their job growth pick up of late, but they still are below where they were before the recession. About three-quarters of 25-to-34-year-olds had jobs in February, down from a prerecession high of 80% in 2007.

The Wall Street Journal: http://on.wsj.com/1eeC54W