The rental market in the Bay Area and Silicon Valley is feeling the squeeze, similar to the housing market of resale homes. Business Insider recently reported the Silicon Valley area to have the 6th most competitive rental market in the United States.
Median rents in San Jose, CA are currently $2870, while Palo Alto and Sunnyvale the median is around $3300. Rents came off their peaks from last year, but the competition for available rentals remains. Many project that rents will rise again slightly during 2024 some time after June, with rental prices cautious to stable overall.
The vacancy rate is sitting around 5% with an average of 8-10 applicants. The hotter areas currently seem to be Mountain View, Palo Alto, and Fremont, with towns such as Sunnyvale, San Jose, and San Mateo cooling off very slightly.
What's driving the squeeze? We believe the housing market of resale homes plays a part as well. Due to higher rates, less sellers have been putting their homes on the market. This creates a competition for resale home purchases, with multiple buyers that lose out on each home. Additionally, some homebuyers retreat at the thought of higher interest rates so between the two overflow groups, many young families have entered the rental market. Some of these are experiencing frustration as they are edged out in competition for rentals as well.
Despite job cuts, other companies have required their employees come back to the office which has created a demand for local rental housing. Additionally, even though California has seen some attrition and also developed new units, the existing housing shortage crisis still hasn't been solved. Another factor affecting rentals is the sheer lack of affordability of resale homes. In the Bay Area only about 25% of households can afford to purchase a home (give or take depending on which city), leaving most families vying for limited rentals.
We may see a competitive rental market for quite some time. Time will tell - once we start observing multifamily rentals offering generous concessions to buyers we'll know the market has eased up a bit.
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Sources: Zillow, Business Insider, NBC Bay Area, California Association of Realtors
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