A new report on O'ahu's rental housing market has some good news for renters: the average rise in rates this year is the smallest in six years.

Average asking rent for available housing, including single-family houses, townhouses and apartments, is up 2 percent to $1,661 from $1,628 last year, according to the report by local market researcher Ricky Cassiday.

For renters, it's a big improvement over the previous four years, when average asking rents jumped 10 percent to 18 percent per year.

"There's not quite the shakedown that there was a year or so ago," said Jeff Forrest, a transplant from Oregon who recently moved into his fourth rental in two years on O'ahu. Forrest, an administrator for a scrap metal broker, found a $2,200-a-month Hawai'i Kai house that's roughly twice as big as a St. Louis Heights home he previously rented for $2,000.

But renters may not feel like celebrating too much, because Cassiday's report predicts asking rates will increase 5 percent or more next year and in 2008.

Cassiday added that people looking for a rental this year continued to face very limited choices as vacancy rates declined to a 12-year low of 3.5 percent.

"I think renters should be happy that they won't be squeezed as hard," he said. "It's been a landlord's market. We might be at a tipping point where things are evening out a little bit."

Recent rental seeker K. Espero said he hasn't seen any leveling of the market during a six-month-and-counting rental search on O'ahu.

"I feel the market is too insane," Espero said. "I saw a place for $800 — you wouldn't put your dog in it."

Espero, a 29-year-old in the fumigation business living with his mother until he finds a rental, said landlords are holding out for high prices and tenants with perfect credit.

"They're being too picky," he said. "You pretty much have to have impeccable credit to live somewhere. It's not right."

Roy Ogawa of Ogawa Realty & Management Inc. suggested that tenants look for rentals as early as possible. "I think it's going to be a hard rental market in the future for a long time," he said. "I don't see how it's going to get better."

Renters make up about 40 percent of the state's population, which historically has faced some of the highest rental rates in the country.

Last year, rent in Hawai'i cost more than in any other state, according to a Census report released last month that calculated median household monthly rent at $995, meaning half the renters paid more and half paid less.

That was up 14 percent from $871 in 2004, said the Census report, which measures rents paid on long- and short-term leases statewide as opposed to Cassiday's report that tallies what landlords are asking for available property on O'ahu.

Cassiday reported that asking rents rose 18 percent from $1,378 in 2004 to $1,628 last year. His assessment of the market taking a breather with a 2 percent rise this year is closely linked with O'ahu's softening market for home sales.

In recent years, very low interest rates and rapidly rising prices created a home-buying frenzy during which many rental properties were removed from the market by owner-occupant buyers.

The hot market also allowed landlords to raise rents, which forced renters to pay more, move into less attractive housing, divide space with roommates or move in with relatives. Others faced a more dire option: homelessness.

This year, O'ahu home sales are on pace to decline about 17 percent, and prices, while still higher than a year earlier, are flattening.

Fewer home sales have meant fewer rentals taken off the market. In some cases, difficulty selling homes is leading some property owners to rent units instead.

Still, strong demand for rentals combined with no significant rental construction has pushed vacancy rates down. According to Census figures, 3.5 percent of O'ahu rentals were vacant this year, down from 3.9 percent last year and from a 20-year high of 8 percent in 2001.

Cassiday said he expects the vacancy rate to decline for at least two more years, because little new inventory is expected to come on the market in that time.

Among major rental projects slated for construction in the next few years are luxury units at Victoria Ward Centers, moderate-price units at the planned Moana Vista high-rise on Kapi'olani Boulevard and lower-income units at 'Ewa Villages and Villages of Kapolei.

Several high-rise condos under construction in Kaka'ako should result in numerous rentals but at moderate to luxury prices that should contribute to the expected boost in average asking rents.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.