When I say spark… I mean a very tiny spark… very tiny.

A mortgage broker I work with sent me a real estate outlook newsletter from Kiplinger. You can download the PDF version here: Kiplinger Letter. There are some pretty scary outlooks in this newsletter dealing across the board of financials. Below are a few excerpts from the real estate outlook.

A surge of defaults is inevitable: About 5% of loans will go bad, up from 1.6% in 2008. And a few hundred more banks will go broke. Hardest hit: Small and midsize banks. They loaded up on developer loans as big banks gobbled up home mortgages during the housing boom.

No region will be left unscathed by rising vacancies and loan defaults, but Calif., Fla., Ga., Ariz., Mich., Ohio and Ind. will be among those most punished.

For renters…bargains galore. We expect rents to drop about 2% a quarter through 2010. So…a good time for tenants to renegotiate and extend leases.

So where is the bright spot for San Francisco?

Look for office vacancies to rise till early 2011, from an average of 16% now to 20% next year. Miami, Orlando, Las Vegas, San Diego and Phoenix will suffer most. Two bright spots: Washington, D.C., and San Francisco, where the market’s improving.

I told you it was small. There is other good news in this report. Did you see it? I did, but it’s hidden like a diamond in the rough. With rents lowering 2% a quarter through 2010, you will be able to pick up some good rental properties next year. As the rents increase the total value of the properties will grow at a compounded rate.