It’s Not Over: Rents in San Francisco Down 30%, in Silicon Valley Down 19%, both at Multi-Year Lows. But Inland Rents Spike


by Wolf Richter, Wolf Street:

The US rental market has been thrown into turmoil. But in no major city have rents plunged from so high by so much so fast as in San Francisco.

San Francisco, which still has the most ludicrously expensive rents of any major city in the US, keeps getting less ludicrously expensive amid painfully low occupancy rates and massive churn of renters looking to upgrade and save – recent rent “recovery” rumors to the contrary.


The median asking rent for one-bedroom apartments in San Francisco in April fell to a new multi-year low of $2,600, down 30% from the peak in June 2019, according to data provided by Zumper:

The five-county San Francisco Bay Area is also the only housing market in the Case-Shiller Index that is now infamous, amid a nationwide blistering melt-up of home prices, for condo prices that have declined compared to a year earlier and are at 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, down 19% from the recent peak it bumped into in July 2019, and then again in March and April 2020:

These “asking rents” are compiled by Zumper from rental listings on Multiple Listings Service (MLS) and other listing services. But they do not include concessions, such as the very common “two months free,” which lower the effective rents further.

“Median” asking rent means half of the asking rents are higher and half are lower. The rental units are in apartment buildings, including new construction, but do not include single-family houses for rent or condos for rent.

Rents for 2-BR apartments in San Francisco, after plunging for months, have been stable over the past few months, with the median asking rent stuck at $3,500, down 30% from the peak in October 2015 and down 27% from July 2019.

There is now a vibrant churn in San Francisco, as many of the renters on month-to-month leases are shopping around and browsing through the large number of vacant units.

How bad is it? 16% of the large apartment buildings in San Francisco whose mortgages have been securitized into CMBS have an occupancy rate of less than 80%, according to Trepp, which analyzes CMBS. By comparison, in numerous cities, such as Phoenix, there are no such buildings with an occupancy rate of less than 80%. None!

So people are using the plentiful vacancies and the deals they get from landlords, such as “two months free,” to upgrade to bigger and nicer units. Landlords that offer the right kind of deals can get their units filled. Other landlords sit on vacant units, waiting for better times.

And some of those upgraders go from one-bedroom apartments to two-bedroom apartments. This classic flight to quality at the same or lower price is changing the mix somewhat. And such changes in mix can skew median rent data upwards with data providers that offer one combined median rent figure for all types of apartments.

These data providers that put 1-BR and 2-BR apartments into the same bucket may show a median rent increase in their summary figure, skewed by this shift in mix to bigger nicer units, without there having been any increases in asking rents per apartment type. And of course, this has played out on the front pages of the local media.

In San Jose, the median rent for 2-BR apartments has been around $2,660 for several months, after having dropped 13% from early 2019. Here too, the vibrant churn and flight to quality has created some stability of larger nicer units at a lower price.

Affordability Crisis Moves Inland.

There are now all kinds of reports on the work-from-homers who have left San Francisco and Silicon Valley for cheaper pastures. Many of them found those cheaper pastures within two to three hours by car from San Francisco, and rents in those markets have exploded under the influx of people with suddenly a lot of extra money to burn.

In Sacramento, about 100 miles east of San Francisco, the median 1-BR asking rent in April jumped by 15% from June 2019 to $1,450:

In Fresno, about 150 miles southeast of San Jose, the median 1-BR asking rent in April has soared by nearly 30% from the recent low point in September 2019. Clearly, some of these shifts have been going on before the Pandemic, and the Pandemic accelerated them:

And the difference shrinks.

Given the swooning rents in San Francisco and the surging rents in Sacramento and Fresno, the difference has collapsed. In San Francisco, the rent dropped from $3,720 in the summer of 2019 to $2,600 in April. In Sacramento, over the same period, the rent rose from $1,260 to $1,450. The rent difference between the two cities collapsed by 53%, from a difference of $2,460 in July 2019 to just $1,150 now.

In other words, renters who made the move in July 2019 saved $2,460 a month in rent. Renters who made the move in April 2021 saved only $1,150. At some point, if the difference narrows further, the savings aren’t worth the move, and the motivation to move to these cheaper pastures disappears.

And the rent spread between San Francisco and Fresno has collapsed by 49%, from $2,720 in July 2019 to $1,380 in April:

Similarly, the difference between 1-BR rents in San Jose and Sacramento has collapsed 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 cause major rent turmoil in smaller surrounding markets, such as Sacramento or Fresno, and this may continue to put some upward pressure on rents in those inland cities. But the sharply narrowing spread in rents makes the move less of a money-saver and less of a motivator than it was a year ago.

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