It’s Not Over: Rents in San Francisco Down 30%, in Silicon Valley Down 19%, each at Multi-Yr Lows. However Inland Rents Spike
The US rental market is in turmoil. But there is no major city in which rents have fallen as quickly from as high as in San Francisco.
By Wolf Richter for WOLF STREET.
San Francisco, which still has the most ridiculous rents of any major city in the US, is getting less and less ridiculous given painfully low occupancy and massive tenant churn looking for upgrades and savings – recent rumors of a “rebound in rents” on the contrary.
The median asking rents for one-bedroom apartments in San Francisco fell to a new multi-year low of $ 2,600 in April, a 30% decrease from the June 2019 high. This is evident from data from Zumper:
The five-county San Francisco Bay Area is also the only real estate market in the Case-Shiller Index notorious given the nationwide collapse in house prices for condominium prices that have fallen year over year and are at where they are in March 2018 levels.
In San Jose, the largest city in the Bay Area and part of Silicon Valley, the median asking rent for 1-BR apartments fell to a multi-year low of $ 2,050, a 19% decrease from the most recent high in July 2019. and then again in March and April 2020:
These “advertised rents” are compiled by Zumper from rental entries in the Multiple Listings Service (MLS) and other listing services. However, they do not contain any concessions like the very common “two months free” which further reduce the effective rents.
“Median” asking rent means that half of the asking rents are higher and half are lower. The rental units are located in apartment buildings, including new builds, but do not include single-family homes for rent or condominiums for rent.
Rents for 2-BR apartments in San Francisco have been stable in recent months after a month-long slump. The median asking rents were USD 3,500, 30% less than in October 2015 and 27% less than in July 2019.
There is now a brisk exodus in San Francisco as many of the renters who rent month to month shop and rummage through the large number of vacant units.
How bad is it? According to Trepp, who analyzes CMBS, 16% of large San Francisco homes with CMBS mortgages have less than 80% occupancy. For comparison: In numerous cities like Phoenix there are no such buildings with an occupancy rate of less than 80%. None!
So people take advantage of the numerous vacancies and offers they receive from landlords, such as: B. “two months free” to upgrade to bigger and nicer units. Landlords who offer the right offers can have their units filled. Other landlords sit on vacant units and wait for better times.
And some of these upgrades move from one bedroom apartments to two bedroom apartments. This classic flight to quality at the same or lower price changes the mix a bit. And such changes in the mix can push the average rent data up with data providers who offer a combined average rent figure for all types of housing.
These data providers, who place 1-BR and 2-BR apartments in the same area, may have an increase in the average rent in their total number, which is distorted by this shift in the mix to larger, nicer units without the asking rents per Housing has risen kind of. And of course that has played out on the front pages of the local media.
In San Jose, the median rent for 2-BR homes has been around $ 2,660 for several months, after falling 13% since early 2019. Again, the brisk churn and flight to quality has resulted in some stability of larger, nicer units at a lower price.
Affordability crisis is moving inland.
There are now all sorts of accounts of the work of Homers who have left San Francisco and Silicon Valley to go to cheaper pastures. Many of them found these cheaper pastures within a two to three hour drive of San Francisco, and rents in these markets have exploded amid the influx of people who suddenly had plenty of extra money to burn.
In Sacramento, about 100 miles east of San Francisco, the median 1-BR asking rent in April rose 15% to $ 1,450 from June 2019:
In Fresno, about 150 miles southeast of San Jose, the median 1-BR asking rent in April rose nearly 30% from its most recent low in September 2019. Some of these shifts clearly occurred before the pandemic, and the pandemic accelerated them:
And the difference diminishes.
With rents dwindling in San Francisco and rents rising in Sacramento and Fresno, the difference has collapsed. In San Francisco, rent dropped from $ 3,720 in the summer of 2019 to $ 2,600 in April. In Sacramento, rent rose from $ 1,260 to $ 1,450 over the same period. The rent differential between the two cities collapsed 53% from $ 2,460 in July 2019 to just $ 1,150.
In other words, renters who moved in July 2019 saved $ 2,460 monthly in rent. Renters who moved in April 2021 saved just $ 1,150. At some point, when the difference continues to narrow, the savings are not worth the move, and the motivation to move to these cheaper pastures disappears.
And the rental range between San Francisco and Fresno is down 49%, from $ 2,720 in July 2019 to $ 1,380 in April:
Similarly, the gap between 1-BR rentals in San Jose and Sacramento has decreased by 53%; and the difference between San Jose and Fresno has collapsed by 47%:
It doesn’t take much for the exodus from a large market like the Bay Area to result in major rental turbulence in smaller surrounding markets like Sacramento or Fresno, and this could put further pressure on rents in these inland cities. But the narrow distribution of rents makes the move less money-saving and less motivating than it was a year ago.
A similar scenario has played out in the US, with shifts from the most expensive rental markets to cheaper pastures, triggering the corresponding rental slumps and peaks. That the US rental market has been in turmoil is an understatement. And this is just one example – although in no major city have rents dropped from such high pedestals as quickly as in San Francisco.
Have fun reading WOLF STREET and would you like to support it? Using ad blockers – I totally understand why – but would you like to endorse the site? You can donate. I appreciate it very much. Click the beer and iced tea mug to find out how:
Would you like to be notified by email when WOLF STREET publishes a new article? Login here.
