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SAN DIEGO-High home prices and limited supply have helped drive the city’s apartment prices to record levels, according to a report released by Marcus & Millichap. Median home prices in the area have topped $580,000, further pushing down the affordability index. Those prices “have put the San Diego apartment market on track to post solid gains in sales, rents and occupancy this year,” according to the report.With those high prices pushing home ownership out of reach for many residents, it’s made renting more attractive. According to the Marcus & Millichap report, apartment vacancy is set to end the year at 3.5%. The low vacancy rates are making times easier for apartment owners. “For the most part, only recently constructed properties are offering concessions, which amounts to an average of two to four weeks of free rents.” According to the report, owners plan to downgrade concessions as soon at properties are fully occupied. And, the apartment market is set to get even tighter over the coming year, with significant rents hikes on the horizon.As for new development, apartment construction is down 27% from the previous year with only 3,000 units having been built in 2004. If anything, condo construction has begun to outstrip straight apartment development and existing apartments have seen a dip as well, with many of those being converted to for-sale units. Of the new developments for apartments, the Mission Valley area appears to be the hot area of choice. Two projects on tap hold 881 and 492 units respectively.For the year, rents increased more than 4.5% to $1,165 per month. According to the report, look for rents to continue to rise, with luxury units to get the biggest hikes, with an expected 5% jump in asking rents and currently a $1,500 median price. Downtown and the La Jolla/UTC submarkets are among those faring best in the luxury sector.

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