Cost of Renting Soaring Faster than Cost of Buying a Home
If you think home prices are climbing rapidly, it’s nothing compared to what rents are doing all across the country – but especially in the Bay Area and throughout California.
Altisource’s RentRange compiled data on the 25 housing markets where rents are rising the fastest, and two of them are in the Bay Area and eight in California. The Sacramento metro area came in at No. 2 nationally, while the San Francisco-Oakland-Fremont metro ranked No. 4, and the San Jose-Sunnyvale-Santa Clara region was No. 7.
The Sacramento area had a whopping 17.6 percent year-over-year increase in rent prices in the 3rd quarter, according to the new report. The San Francisco metro wasn’t far behind. The area saw rents soar 17 percent during that same period. And the San Jose metro area had a 16.1 percent increase in rent from a year ago.
Why are rents rising so fast? RentRange Chief Executive Walter Charnoff believes it’s the result of rising demand for rental housing, along with home values recovering from last decade’s foreclosure crisis and pushing up rental prices with them.
The number of single-family renter households increased by 3.9 million, or 34 percent, from 2006 to 2014, according to the U.S. Census Bureau. More generally, increased demand for all types of rental housing has been driving up prices across the U.S.
A separate study by the website Zumper found that rents for a one-bedroom unit in San Francisco now average $3,620, up 13.1 percent year over year. That made San Francisco the highest priced rental market in the U.S., according to the study, outpacing even New York City.
San Jose and Oakland weren’t too far behind in that study, ranking as the fourth and sixth most expensive rental market in the U.S. with one-bedroom units averaging $2,270 and $2,080 a month, respectively. Looking for a two-bedroom rental in San Francisco? Be prepared to shell out an astounding $5,000 each month.
By comparison, the median sale price for a Bay Area home so far this year is up 9 percent. So while there’s no denying that real estate values are going up in the Bay Area, from where I sit buying a home still looks like a very good value when compared to the cost renting!
Below is a market-by-market report from our local San Francisco Bay Area offices:
East Bay – The Lamorinda market is experiencing a cyclical slowdown due to the upcoming holiday season, reports our Orinda manager. However, aggressively priced listings continue to see multiple offers as overall listing inventory decreases.
North Bay – Our Novato manager say sellers still have high price expectations and as a result agents are seeing very few multiple offers and properties are sitting on the market longer than the summer months. More agents are taking offers “as they come” and not on a particular date. “Days On The Market” in Northern Marin area is still less than this time last year, and likely due to lack of inventory. Currently, buyers appear to be taking a break and not jumping the moment new inventory appears. As interest rates begin to tick up this could affect affordability for buyers even if mortgage interest doesn’t increase immediately. The market is still strong for buyers and sellers, but more inventory is still needed and continues to be the biggest challenge in the Northern Marin market. Our agents in San Rafael are busy with our office move and preparing for the new year. The sales activity appears to be in the pre-holiday slowdown, however good properties are still selling fairly quickly. If a seller needs to sell now is the time to get their home on the market. Our Santa Rosa Bicentennial office manager says a general slow-down in the market is occurring as buyers become more focused on value and quality of listings and sellers are slow to adjust from a hot market. A home that has any major flaw is being looked at critically now whereas it would not have been six months ago. Even a home that meets all buyer criteria other than a steep driveways or road noise is finding resistance as buyers state that they can wait for one that does not have those issues. The market has moved to house specific from area specific. We have seen 3 offers on one home and none on the other and they are similar homes in the same neighborhood. Our Sebastopol manager reports less activity at open houses this past weekend while the Previews luxury manager is steady. The Southern Marin market overall has slowed down both for listings and pending sales. The luxury Previews market remains steady with 18% of homes over $3 million under contract and 10% of homes over $5 million under contract.
San Francisco – This is definitely a shifting market, according to our Lombard office manager. There are fewer offers, closings closer to asking prices, more price reductions, and longer days on market. It’s not uniform across all price points, but generally the higher the price the bigger the slowdown in the last 4-5 weeks. Management of expectations has become more important than ever. North of $3 million is slowly becoming a buyer’s market. Our Market Street office manager agrees that as we approach the holidays, there’s a definite shift in the market. Inventory levels are rising, price reductions are more common, and offer dates come and go without a deal. We’ve even seen the phenomenon where a property receives no offers on an offer date, only to receive multiple over-asking offers a couple weeks later. Of course, the well-priced “shiny penny” properties are always in demand, and receive multiple offers (one home received 23 offers this period, though 2 to 3 is more typical). Serious buyers should take advantage of the shifting landscape to step up and purchase a home now against less competition.
SF Peninsula – The Burlingame area is experiencing a slight increase in market activity from the previous week. The Previews luxury market is steady to slightly increasing. Across the hills in Half Moon Bay, inventory remains in short supply. Our Menlo Park manager says open houses continue to be strong. There are plenty of buyers out there, however sales are slower. Multiple offers are less plentiful and often 2 or 3 will be under list and maybe one over. The market is still out of balance with more buyers than sellers. Confidence level among buyers is back up after the resurgence of the U.S. and Chinese equity markets. Our Redwood City/San Carlos manager says this is a very unpredictable market. There still is definitely a lack of inventory. Sellers are beginning to realize that there is a change in the market and many are anxious to market their properties ASAP. They are not always being realistic about list price, though, she notes. It’s a challenging time for all. Our San Mateo manager says the local market overall has become more of a steady one, but listing inventory has slowed.
Silicon Valley – Unfortunately inventory continues to drop, according to our Cupertino manager. Some agents are gearing up to put listings on in 2016, but nothing for the remainder of this year. We need more open house opportunities, she says. In the Los Gatos area, there has been a strong resurgence of buyer activity from buyer’s trying to complete their purchases prior to the year’s end. Our San Jose Almaden office listings are increasing although they aren’t coming to market (MLS) yet. But area listing inventory is decreasing. It seems that the holiday slowdown has begun. Prices have remained strong even though units sold are down. Almaden is down 18 units compared to last month but the average sales price is flat. Blossom Valley closed 13 fewer units and prices were only down 4.5% while Cambrian closed eight fewer units and prices remained flat. Our San Jose Main office manager says inventory remains low. Buyers remain cautious but are educated and when a home comes to market priced well buyers wont delay in making an offer. Most homes are staying on the market for a couple weeks before offers. Average days on market is closer to 45-60 days on market. Willow Glen continues to see active listing inventory decline. The market was down to 50 units, however there were nine new listings that came on the market this past week. The pending holiday season is not slowing down sales activity; we just need more inventory. Buyer demand is still strong, open house traffic even on rainy days continues to be heavy. We continue to experience multiple offers well over asking price for most properties.