This article seems to be based on only a few transactions, as not a lot of people are actually moving right now.
I manage a couple of properties in the Bay Area, so I keep a close eye on these things. What I'm seeing is not a drop in rents, but an increase in $0 deposits and many weeks of free rent upon move in (sometimes 6+ weeks).
Landlords are very reluctant to lower rents, because with the statewide rent control that limits increases to 5% a year, we're incentivized to keep the rents high and give months of free rent, just so our base rate doesn't drop.
That's the first step, and this has happened many times before. No REIT drops rents; instead, they offer "$0 deposit", "no rent for the first 45 days", etc. Once these tricks are exhausted, rents will drop. The issue is: how long does it take for these tricks to exhaust?
In 2008 rents in the Bay Area just stayed flat for a few years except in the most expensive parts of SF. So in 2008 at least, those incentives were enough. This time may be different though, with a fundamental shift to work-from-anywhere for tech companies.
In 2009 rents dropped rapidly in Mountain View. I moved here in early '09 and my employer paid a realtor to show me around for a day. Told him my budget was $2000/month, and asked about a fairly swanky mostly-corporate-housing-but-a-few-individual-tenants complex. "Oh, that one's out of your price range", he said.
Ended up taking an apartment there for $1400/month six months later, and it stayed at that level for 3 years. (And then shot up rapidly afterwards - I left when it hit $2400/month 5 years later, and it's currently renting for $2900/month.) It had gone down so rapidly that its price was underneath the less-swanky complex a block down the street which normally rented for ~$300/month less and had itself cut rents from about $1800/month to $1450/month over those 6 months.
Rents are sticky - landlords try to avoid cutting if they don't have to. But when there's a choice between letting the apartments go vacant and servicing your debt payments, they have to cut, and if there's a shortage of tenants at that time (because everybody's left and gone home) the cuts can be pretty drastic.
Sorry I'm on mobile right now but the last time this came up I posted graphs showing the median rent in the bay area was flat from 2007 to ~2010. There were certainly some complexes cutting rent, but most renewals were flat and most renters are not moving every year.
I could believe that, but the question that most people are asking is not "What is the average rent that people who choose to stay in the Bay Area are paying?", it's "If I choose to move, can I get cheaper rent?" Certainly I saw that at the higher end of the market in 2009. (The low end of the market - where most people are, and hence the biggest contributor to the average - moved much less then, because there was much less room for it to move.)
I wonder if house prices will also behave similarly. Right now, the "mainstream" market (i.e. the house that working professionals can afford on income and mortgage without being independently wealthy) tops out at about $2.8M-$3M in Mountain View or Los Altos, but there are a lot of houses selling in the $4-6M range that presumably are being bought with stock options. Could perhaps see a collapse of the top end of the market down to the mainstream real estate market if the stock market collapses.
Averages of all rentals are going to be less indicative of reality due to the fact that low income, mid-income, and high income luxury rentals don't necessarily move in lockstep.
> No REIT drops rents; instead, they offer "$0 deposit", "no rent for the first 45 days", etc.
Is this true in markets where people can legally squat for months? Or as in Seattle where landlords are required to indiscriminately house the first qualified applicant? $0 deposit would make this very exploitable.
No, they charge you for the first month. Then the next N number of months or weeks are free. Source: I’ve twice gotten free rent, once rent controlled, one market rate.
What do you mean tricks exhaust? It's a loophole, so it will work until the laws are changed to close the loophole. It makes no different to the landlord or tenant if the base rent is dropped, or the effective rent is dropped (assuming everyone can do basic math)
"Tricks exhausted" means when the trick is no longer sufficient to keep apartments filled; when the only way to entice new renters is lower absolute rents.
No one is going to click on a $2000 apartment with six months free when the listings are full of $1500 apartments.
The primary reason for these tricks to keep the rents high. If a company offers 45 days free rent on one year lease with $2500 per month, that amounts to effective $2187.5 per month, 12.5 percent discount. During the renewal, the land lord will either keep $2500 per month or add another 3% on top of $2500. That's how these REIT companies have been doing. Even leasing agents won't help, as rents are determined by REIT algorithms.
Small mom and pop landlords play it differently. They will just rent you outright without these tricks.
- A month (or year) of time in the apartment for cost $x.
- An option on purchasing more time for cost $y/time unit.
What these "tricks" do is make $x less than $y. That makes sense in the short term when you expect to be able demand higher rent/unit time in the future. When that expectation is no longer likely, it makes sense to lower $y to $x because other landlords will, and they will have less turnover (costs) and the same amount of income.
I don’t think that’s true. The landlord can cancel this “option” reasonably easily so it is quite different from selling a call.
I look at it like: the fair value for rent is x. The current rent is y > x. If the landlord nominally lowers the rent, they cannot raise it to as high a value next year, and they do not want to do this. Therefore they are incentivised to (effectively) give the tenant money along with the rent to decrease y without changing the nominal rent and giving up on the right to increase it.
> The landlord can cancel this “option” reasonably easily so it is quite different from selling a call.
Theoretically in a rent controlled market the landlord can't cancel the call option. In practice they might be able to by jumping through some (expensive) hoops, but it should be a reasonable approximation still.
I'm not quite sure what sf/Cali law looks like so I am just taking in generalities about rent controlled markets.
That’s exactly the case I’m describing in the second paragraph. I don’t understand what this has to do with the “option” scenario claimed by the post I replied to.
It maybe looks like the landlord is selling a years rent for x and buying a put for the next years rent at y (and recursively options for the later years), but it isn’t really like a put either because it’s really a right-to-try-to-sell rather than a right-to-sell.
I'm moving to a new location in SF and I'm seeing rents plummet. My landlord dropped rents across the board by about %20 (after ignoring my email for a rent decrease...). My new apartment is a pretty big down size but is nearly 1/3 of my previous. Rental groups on Facebook are showing a similar decrease in pricing.
More anecdata, but as a resident who IS moving I really disagree with your take - we're probably both right in different ways.
Tenderloin, I mainly looked in the Russian Hill / Marina / Lower Pac heights areas for private 1 bedroom situations in 2/3 additional roomates. I ended up going for a place in the Presidio. For the most part the opportunities I was seeing were for subleases where a tenant moved out hurriedly, which seems to be VERY common right now.
FWIW all private room + 2/3 roomate situations were in the range of $1200 - $1500 vs. my current 1 bed room apartment (no roomates) @ ~$2800 previously.
I worked in the TL for three years and went on a few dates with a girl who lived there. The people in actual apartments are fine. People in SROs not so much, people on the street can be a problem. The needles, urine, feces are real. The attendant at the lot I parked at said he thought he'd be dead within six weeks of taking the job, but in my time there, I think he was only assaulted once (it was more jarring than injuring). One coworker got slapped by one of the crazies, another assaulted. Oddly enough, my car did fine. I've street-parked it around Turk and Jones and picked it up at ~midnight with all my windows intact. As bad as the TL is, it isn't Bayview. I'm always amazed at walk from with Powell to Civic Center, Geary to Market, or west from Union Square; how quickly it changes is incredible. You also see scared, lost tourists a lot because of that.
There are some interesting restaurants there, and you're actually close to a lot of things. If you're living there in a secure building with a secure garage and can mostly avoid the street, it's tolerable. I wouldn't make a habit of casually walking around the block or stumbling home drunk. If you're paying attention and walking with intent, you're generally fine.
Not weird - though its really just the same as downtown SF: 2-5 days a week you will have some combination of a screaming and manic individual immediately in your walking path, see someone injecting themselves immediately in your vicinity, and nearly (or actually) step in dog/human poop. It by no means is the end of the world but over time it wears you down and desensitizes you to the point of completely ignoring all homeless activity always.
After being here for ~2 years I would not recommend the TL because the cost savings and walking commute to downtown are not enough given alternative choices.
If you need to save money you need to move further away to realize real savings, there are too many hidden fees living in the city.
If you have money you'll want to either live in 0-commute distance i.e. near the embarcadero or in literal downtown, or live in the Marina / Presidio / Anywhere else and have a 15 minute drive in.
I live on 22 block Valencia.. I've had 4 neighbors move out in the past month. So as far as price.. I can't say. But as far as folks moving out. I can.
My coworkers in Berkeley are all telling their property managers that they need to either lower the rent or they're not going to renew. Once the UC system said they weren't opening back up for physical classes in the fall demand for places near campus dropped considerably.
My landlord hasn't lowered rent, but to incentivize us to stay he replaced our washing machine and upgraded some stuff around the property. That being said if my company ends up going fully remote (which looks likely) I'll probably be leaving the bay area anyways.
> Once the UC system said they weren't opening back up for physical classes in the fall demand for places near campus dropped considerably.
You've been given bad info. The UC President said all campuses will be open in the fall, in a hybrid mode. Berkeley's Chancellor has said that labs will be open with restrictions, but most likely lectures will not.
That of course could change.
One of the properties I manage is in Berkeley. I just renewed the lease in May, but I put in a clause that allows the tenants to cancel if classes are cancelled. They wanted to make sure they had housing secured in case classes came back. I also told them we would reduce the rent in the Fall if necessary.
As a landlord, I'd much rather have renters at a reduced rate than none at all, even if that rent is near zero, just to keep the place occupied to reduce crime.
UC Berkeley has not yet made a decision on whether classes will open in the fall. There are three possible plans for the fall at the moment [1].
The UC President has said that they expect a hybrid mode of instruction, but it's not clear whether there will be in person classes. It seems like each school themselves have a say in the decision.
> Napolitano indicated that each UC campus would be required to “meet system-wide thresholds” for Covid-19 testing, contact tracing and isolation before being allowed to open.
> Once the standards are met, campuses “can consider whether to maintain fully remote instruction in the fall or return some portion of their students to campus.”
> A decision is expected in the middle of June. [2]
"Labs" in this context means supplemental classes of ~20 people associated with a lecture, especially when lectures are often ~200+ people. If I'm taking a CS class, I might go to lab two times a week to reinforce and cover topics learned in lecture. (See [1] for an example of the colloquial usage of "lab.")
So when I say "classes will be closed," I mean that labs will not be open.
As a graduate of Berkeley, I'm well aware of the colloquial use of the term "labs". However, that is not the way the Chancellor is using it in her statements.
She means the more standard definition of "places where there is equipment for students and professors to use for research".
She is saying that campus labs (rooms with special equipment for research) will most likely be open in the fall with extra precautions, and that classes may be remote only or they may offer both remote and in person options, but they haven't decided yet.
But she's pretty adamant that students and professors will have access to their equipment for research.
So no, campus will not be closed. Classes may be closed, which I said initially.
I'm not sure why you're arguing with me. We said the same thing. You just said it in a different way, and I'm not sure why.
This is an oversimplification of already simple market dynamics. What sets the market is the supply and demand. If demand drops sharply after an event like covid-19 and supply is held constant, prices will go down except in extremely distorted markets like the ones ISPs and telcos play in.
There are two parties to the transaction. The market clearing rate is set when the two parties agree. When one party is not showing up, there is no market clearing rate.
The intrinsic value may in fact be down, but there is no way to know for sure without two parties in the transaction.
Over time, he's right in principle. But maybe, there just hasn't been enough time yet for it to play out. if we're seeing price declines, then it's already playing out.
The same thing happened in Manhattan back in 2008 due to the financial crisis.
- 13 month rents for the price of 12
- $0 deposits
- etc
In practice, this meant that a lot of young people who were living in Brooklyn decided to move back into Manhattan. This was one of the main driving forces behind the transition of the Financial District (basically almost the southern tip of Manhattan) from an office only area to a residential area.
I actually knew someone who lived in an "apartment" building that had been converted from an office building. The layout was of an apartment but if you looked up you saw the classic perforated drop ceiling tiles of an office.
My friends in property management tell me that people are indeed moving. My neighbor had a turnover just last month. Job losses plus no rent relief pretty much require that people will move.
Not everyone is stuck at home with no income. If I were working in the Bay Area for a company that was still doing ok, and I were already planning to move around now, I would definitely see this as an opportunity to get a good deal on rent by moving. Maybe some other people are thinking this. Or maybe they are thinking that there is no point moving elsewhere in the Bay Area and are moving further out.
Though I would certainly expect the number of transactions to decrease a lot.
Up until the new modified shelter in place orders, you couldn't move unless your lease expired or you already had the move planned. Also moving companies were allowed to stay open if they provided their movers with PPE, so many chose to shut down.
So for the most part people just couldn't move, even if they wanted to.
But if few people are moving anyway (for reasons above) then it doesn’t matter if there are fewer moving companies because of the above. Obviously some people are moving or the OP wouldn’t have been written
People not moving is literally the problem. This is part of a broader negative demand shock in the economy at large. Where exactly do you expect people without jobs, or with significantly reduced income to move to?
> Where exactly do you expect people without jobs, or with significantly reduced income to move to?
I mean I personally hope that the government steps in and helps them stay where they are, but that will also keep rents artificially high and would be a transfer of wealth from the treasury to landlords. So pros and cons.
Realistically what seems to be happening is people are moving to lower cost areas within California or outside the state, or moving in with family.
You've missed or failed to acknowledge the actual point I was making. I think any reasonable person would agree that forcing double digit millions of people out of their homes is a very undesirable outcome. Most of those people would agree that something needs to be done (exactly what being dependent on one's political and economic ideology). Many of those people would probably also agree that the government is the one that needs to do something, simply because almost all political ideologies agree that one of the purposes of government is to do things that private citizens cannot. Let's just agree on this, unless I'm grossly misinterpreting what you're saying.
What I'm actually saying is that you can't simultaneously agree that "people aren't moving to SF," and that "the market is fine, because it's a thin market and these prices reflect very few transactions." The latter is a consequence of the former, and the root cause of both is that people just don't have the money to move. This, in combination with the coronavirus eviction moratorium in California, leads me to believe that people aren't moving anywhere, not that they're moving to lower cost areas.
I hope I'm wrong, because unless the government steps in with something radical like a debt jubilee, those people staying in their SF apartments with no income and incurring debt are just going to suffer more down the road.
> we're incentivized to keep the rents high and give months of free rent.
That's basically a fancy way of lowering the rate, right?
Our friends just bought a new house in a development and the builder did a similar game where they added in some bells and whistles instead of coming down on the price. Their reasoning was that they couldn't drop the price because that's public data and it would put pressure on them to accept lower prices from other buyers in the neighborhood.
It is, but it doesn't affect the base rate, so it allows a bigger increase when things get better again, because the increase limit is a percent of the current rent (not including discounts).
> Landlords are very reluctant to lower rents, because with the statewide rent control that limits increases to 5% a year, we're incentivized to keep the rents high and give months of free rent, just so our base rate doesn't drop.
How is it that Mission Bay apartments are not subject to these rent control regulations if this is state wide? Asking because when I lived in Mission Bay, UDR properties each year tried increasing my rent much higher than this.
Statewide rent control in California wasn't enacted until January 1, 2020 (with a retroactive period of several months I believe).
So, if you rented before Jan 1, and your rental unit was built after 1979, it wasn't covered by any rent control. Landlords could raise rent as much as they wanted on those types of units.
Mission Bay apartments were built after 1979 (or whatever the exact date is). It's all new construction, which isn't subject to rent control:
https://www.sftu.org/rent-control/
The only reason rents are not dropping yet is human psychology.
Landlords don't want to accept that rents need to go down so they leave it up at the same price even if it means that places go vacant for multiple months. In a perfect market rents would be down 15/20% already.
Its just another way of saying landlords need to incentivize renters. So the market has definitely changed. I feel this is a stopgap measure and that rents must come down eventually. At that point the incentives will stay too.
During the last downturn in 2008, only the highest rents in SF dropped. The rest of the Bay Area just stayed flat for a few years.
This downturn may be different because of the shift to work-from-anywhere in tech, but it will be interesting to see. A lot of people like their tech offices, with their free lunches and snacks and gyms and coffee and so on.
People liking their tech offices won't be the deciding factor here. The tech companies like the prospects of hiring people on completely different terms now, outside of the Bay Area. Expect things to change dramatically.
> Landlords are very reluctant to lower rents, because with the statewide rent control that limits increases to 5% a year, we're incentivized to keep the rents high and give months of free rent, just so our base rate doesn't drop.
God what a short-sighted policy. Not that I expect rent control to go well but that's nuts.
Rent control has a lot of unintended consequences. It is supposed to be a short term band-aid for bad zoning policies, but the zoning policies actually have to be fixed if you want to remove the band-aid.
In defense of rent control, it provides a stabilizing force during a downturn. How many folks who live in an apartment that has been under rent control for 10+ years are packing up and moving into their parents basement right now? My guess is very few.
It certainly has its issues, but there are much worse market distorting policies that I would like to see be fixed before rent control gets put on the chopping block.
I’m not sure this is a good argument. What landlords would try to raise rents or evict aggressively during a recession?
Rent control prevents rents from aggressively dropping because landlords know the rents can’t be increased later. This is during a time when rents really need to go down.
Not the OP, but I think his point was people aren't ending their lease and moving home til covid is over, because if they did, they wouldn't be able to get that low of rent again.
I imagine there will be lawsuits on effective rent vs published rent. Imagine paying an official rent of $2400 but you get an extra month free for every rent payment. Your effective rent is then $1200. These types of teasers aren't within the spirit of the law. In fact, maybe they are already prohibited in the statute.
" In determining the lowest gross rental amount pursuant to this section, any rent discounts, incentives, concessions, or credits offered by the owner of such unit of residential real property and accepted by the tenant shall be excluded. "
Just like everything else, it's a two way conversation. The discounts have to happen with the tenant's knowledge and agreement. If you don't like it don't rent from a landlord who plays those games. If every landlord is playing extreme games with discounts to game the rent control law, it only points to the deeper problems that we all know exist but refuse to fix.
I'll rent to you at $5000 a month with a $4k discount month to month. That discount is renewable solely at managements discretion after 12 months. Seems egregious.
Yeah, and if someone made me that offer on my current ($2k/month) apartment, I would turn it down despite it being a 50% discount because I don't want the uncertainty of having to move in a year. This is not a problem if both parties know up front. The only way it becomes a problem is if I think I'm renting an apartment for $1k/month and then a year later my landlord says "Oh, actually your rent was $5000/month but you had the $4000/month move-in discount for the first year, your rent is now $5250/month".
Right but when the market becomes red hot again why would they not? I think this will only impact units that fall under rent control more generally though.
Rent control is trumpeted as some sort of protection for low-income people, but it actually has no such provisions that make it available to, or targets such people. The only beneficiaries of rent-control are people who happen to be incumbent residents.
Also incumbent landlords who are sitting on paid off properties. A landlord with an old building has less vacancies if he doesn't have to compete with new construction.
I'm not sure it works that way. I'm no landlord, but property tax is not subject to rent control reductions as far as I know. The primary beneficiaries of rent control are the people who are the renters, and are often able to extract value out of it from buyouts in the tens of thousands of dollars to as much as hundreds of thousands of dollars.
In a city like SF, vacancies is not a thing. Actually for that matter, in any market the market price is some equilibrium price that gives a certain vacancy rate.
I think existing communities is interchangeable with incumbent residents. There are probably better ways to protect mass displacement of low-income residents since rent control only applies to certain really old buildings. Preserving the community in itself is not a bad thing to do but a lot of these policies have also been blocking the building of higher density housing, which could satisfy everyone (keep old residents AND let in new residents).
> Hell, I know a guy who has a rent control units for a couple decades. He can pay his monthly rent with one day's take-home pay.
It sounds outrageous, but I know someone like that too. Got a rent controlled box in Berkeley as a student, never left. Rent is only about $700 a month now. If you make $180,000 a year, that's a single day's pay.
Yup. I remember people telling me this when I first moved to SF. The rent may suck, but if you get a rent controlled place, a few years later you’ll be paying below market and the economics start to make more sense.
In NYC, there remain a vanishingly small number of rent controlled apartments, and for every lucky lottery winner there are hundreds/thousands who lose housing/capital/possessions at the mercy of owners.
Not to mention the homeless.
Don't get me started on the housing "market" and rent control impact on supply/demand. Housing is largely an adversarial game, not a win-win game.
You don't need to bet, there is plenty of data to back that claim. The biggest beneficiary of rent control are middle-class earners with artificially low rent. The low-income and retired renters are ancillary beneficiaries.
There's a reason rent-control is almost universally despised among economists. That said, of all the rent-control policies I've seen, I think the least-bad is what they've been using in Spain: no rent increases for 5 years after move-in, then increases are only allowed every 3 years after that.
They've implemented a time-based stabilizing mechanism, instead of an arbitrary percentage-based cap. Moving is a huge cost for a tenant, so if a landlord raises rents every year, expecting people to be able to move every year to a fairly-priced place is insanity. But, I do think most people can handle a move every 5 years to a cheaper neighborhood if they need to.
I just negotiated an extension to a lease in Boston. The landlord eventually conceded 2 free months of rent on an extension of less than a year, but absolutely refused to budge at all on the monthly rent amount.
Their adamant defense that the unit was already at "market price" was just such absolute bullshit that I nearly moved just on principle. Lucky for them, I hate moving even more than I hate the landlord.
The average monthly price on my extension is about 11% below my average monthly price on the old lease.
"Rent control" has existed for nearly 50 years for property owners in California. It's called Prop 13. The current housing mess is a direct consequence of it
We'll see where this takes us, but obviously if the population is dropping by 20% a year, keeping the theoretical option to charge a rent of 4k when the actual value is 2k won't matter.
Also, I'd like to add that landlords are incentivized to charge high rents anyway. Even without rent control there's not going to be $800 rents in San Francisco anytime soon, sorry.
This is just a holding pattern, right now. There's a slim chance that things could go back to normal, say with a quickly developed vaccine through decisive national leadership, and a lot of luck. In that case, those prices will look sensible again.
I think the odds of that are extremely low... but they're not 0%.
Probably, though, prices are going to crash. Some landlords will accept the inevitable and start charging less to rent out their rooms; if things are really caving in as people expect, landlords may be reluctant, but if it's that or lose money on empty rooms, they'll lower prices. And if things get that bad, then landlords will be lowering prices.
Think of all the AirBnB hosts making 0$, all the landlords with mortgages depending on some kind of rent to meet their bills. They'll lead the way, and others will follow, just to keep up.
I think we could go through weird waves of vacant, financialization before rents crash though. People parking cash in real estate that’s risky elsewhere.
I think the reality will set in soon on this once the CARES bonus UI is removed (and if it is not replaced) and the PPP loans run out. Right now everyone I know in real estate is still convinced it was just a minor blip and love to cite cherry picked stats about how a recovery is already under way.
Coincidently I have been seeing a lot of fully furnished units coming on the market which I assume were former Airbnbs.
1. The consequences of having millions of unemployed people with bills to pay and no income are too much for a nation, let alone politicians in an election year. My bet is that the payments will be extended or replaced with something as the alternative is not viable.
2. WFH has already started normalizing, and will shortly become a differentiating perk offered by companies. I don't suspect that may of the people living in tech hubs would choose to continue doing so if they had the opportunity to live anywhere they wanted (of course while considering COL adjustment).
I wouldn't take #1 for granted. The Trump administration is still pushing ahead with the idea of limiting the ability of states to waive the work requirements of SNAP (food stamps), which seems like a bizarre thing to attempt at the moment.
If you're willing to halt people's food benefits during a historic recession, almost anything seem possible.
Well if you think this is going to be a downturn, you should look at how other downturns in housing unfolded. Usually, house prices take a while to fall once things get bad. Usually, you start to see a lot of deals and properties selling way under asking before average listing prices drop. If we are going to get to that point, it certainly doesn't appear to have happened yet.
I'm starting to see this - of the 8 or so houses sold in Los Altos over the last month, one was 5% under asking and the other was 18% under asking. It's still pretty rare though.
More interesting is the huge hit to the volume of sales. Mountain View was turning over about 8 houses/month before COVID, but for each of the last 2 months, only 4 houses have sold, and 5 in March.
I think it'll be a while, and depend upon how the reopening goes, whether we get layoffs at major tech companies, and whether remote work becomes common.
If you're staying in the same market and you already own, then it doesn't matter much. What matters more is that your other investments are relatively outperforming the house (likely already true because of the Fed's money printer).
If you don't already own, waiting for a drop might be wise, but if you're going to sell stock to do it, you might wanna do it now. I'm looking at trading up to a new place right now and that's my plan.
With a lag, and it really depends on the area and how many people benefit from money printing. If the scheme is QE like in europe, the housing prices will not gain as much as the market prices in low to middle-class area.
Oh I'm assuming a mortgage is still involved. Buying a house purely with cash is a stupid move when the fed is handing out free money. Debt is a great tool if you use it correctly.
Do you know when the mortgage payment forgiveness for publicly backed mortgages runs until? I heard it was 6 months or 1 year (not sure which). Do we expect a reckoning after this ie. if the economy is still suffering then
Looking at the real estate data, prices haven't really dropped that much. 2020 started with a historically low inventory of houses for sale nationwide. During the virus lockdowns, both supply and demand dropped so prices remained relatively stable.
I don't think we are going to know the real impact on the housing market until the lockdowns end and people resume normal activities like buying and selling homes. Then we will see if the relationship between supply and demand shifts.
Personally, I think that if work from home continues for a large number of people, people who have families are going to want to get out of condos and apartments and into houses where they can have dedicated office space. I wouldn't be surprised if demand shifts away from places like San Francisco toward houses in the suburbs with 4 or more bedrooms.
There are a few reasons why home prices will take a while to shake out (if they do at all). The CARES act mortgage forbearance is likely preventing any panic selling at the moment. And home owners have a few other tools at their disposal to delay selling like taking in sub-tenants, refinancing, etc.. So I imagine most people selling right now are doing it because they want to, not because they have to. And the real estate agents all have an incentive to keep prices high, so buyers are probably getting the usual 'this is a great time to buy' spiel.
It took about 2 years for house prices to bottom in the 2008 recession. I think the big reason was that it took a while for the record number of foreclosures to work their way through the system. If we do see the housing market impacted due to COVID, I wouldn't be surprised if it took a similar amount of time. But I also think that a quick recovery could prevent or mitigate a downturn.
specifically, it's the tourists causing the cost increase. airBnb is just the facilitator. if they weren't going to airbinb they would've gone to hotels or people renting out their apartments.
This has not been true in any major market for years, once you factor in all the fees that AirBnB doesn't disclose until you book a listing.
Once fees are included, AirBnB is usually more expensive in markets like SF, LA, or NY for individual/couple listings than a comparably furnished hotel room (inclusive of fees).
This is not true at all, I regularly rent Airbnbs in major American cities for less than a quarter of what a basic hotel room would cost in the same location. The AirBnbs are a lot larger and nicer too.
It gets even better when you split the cost with people. I can get a full, nice house in a great location in LA for a little over $200 a night all in and split it with 5 friends. I would have to get a hotel penthouse for the experience to be even close.
And yes, the fact that it's so cheap does significantly increase the appetite for weekend trips for people my age. The housing part of the trip goes from a major expense to almost an afterthought.
Have you seen SF hotel rates during convention season? The most basic rooms go for $3-400. Have you tried to book a Paris hotel in summer? In my experience your statement is not true
Have you tried to book an AirBnb during a marathon? The most basic room goes for $200/night, before you add in the "cleaning" fees or the "service fees" or the other "fees" that hotels are required by law in their original quotes.
I wonder why people renting their cars on Turo(or buying cars to do so) aren't causing car shortages? Oh yeah, because there aren't the artificial constraints on supply there is on housing. Let's focus on the problem and not wish ill on those trying to provide a useful service to others.
It’s a service which even if being operated in compliance with local laws has a negative cost to the rest of the neighborhood through higher issues with noise, trash, parking, etc. There are reasons why hotels aren’t spread randomly around cities.
Living around people at any density has the same costs. Living in a city should have an implied contract that you will have these issues as costs, with numerous other things coming as benefits.
The issues of noise, trash, parking etc should be made to be internalized by those that bring the nuisance. There are noise laws, littering laws, and parking ordinances. Maybe adjustments are appropriate in some cases.
At the end of the day, anti-AirBnB laws are about control over your neighbor. The same things were said about home offices for years (and still are in some localities). The problem is, you can always point to antecdata to support your point, but we should be looking at individual violators of reasonable laws that uphold health and safety in a neighborhood - not using a blunt instrument to snuff out all new uses of property that come about because you don't like it.
And that is also wrong, and unjust in my opinion. When buying property, you gain a bundle of rights over the described property deeded to you. Not an infinite set of positive rights over the whole range of human activities that occur within some geographic radius around it.
My girlfriend and I have been observing the same thing in the rental market. I also believe we’re seeing some local softness in the prices of homes, but I don’t have specific data to show it.
California UI maxes out at $450 per week. This is the same amount as 2008. $1400 per month (take out taxes) won't really cover any rent situation in the Bay Area, and definitely not a $3500 nice-but-not-amazing apartment.
My guess is the parent poster means residents are leaving. I know people who live in an apartment in Manhattan. The only way they can afford it is by renting out a room through AirBnB whenever they can. However, the pandemic+recession means much less demand for AirBnBs in Manhattan. On top of it, they have less work because their industry has effectively shut down from the pandemic. The result is that they can't afford Manhattan because the landlord refused to reduce rent, so they'll be moving out.
As a former NYer, I'm hearing stories from friends who got out when offices closed. Many relocated back to their parent's homes (mostly to suburbs in Indianapolis, Cleveland, or NJ) or to family vacation homes (in Maine, Poconos, or Florida).
Selfishly, I hope these friends thrive in these new locales, whether that's through remote work or finding new opportunities. I hope they get out of their inflated NYC rents and bring new energy and ideas outside of the city. SF and NYC have had a chokehold on tech and other prosperous industries for way too long and this had ramifications nationally and in the cities themselves.
Not to pick on you cause I agree, but I feel like this is a problem with a lot of analysis of this phenomenon. A lot of people really really really hope this happens and the growth of megacities reverses. WFH/Remote job growth is the mechanism they are counting on because outside the cities there is so little economic dynamism, outside of a few firms in a few locations that are almost the only game in town.
At the end of the day, when this is all over, companies are going to want to have their employees in the office, especially as tech jobs become more and more commoditized. My guess is in five years you're gonna have superstars that built insane resumes the past 15 years living wherever they want but the vast majority of tech jobs will remain in tech hubs.
It's funny you bring up remote work. Despite working from home myself, I believe remote working as a trend can contribute to displacement and inequality.
Any job can be enhanced with additional tech literacy, but I don't believe we will achieve a world where the majority of work is telecommutable. Spending my salary enriches the local economy a little bit, but I am taking advantage of a lower cost of living without making much of a major investment. In my current arrangement, I'm not going to rent office space, hire an intern, work with local businesses, or do other actions expected of a small business.
In my "selfish" prediction, some of those employees are caught in a dilemma when lockdown orders are lifted. Spoiled by the potential of life outside of the megacities, they start businesses in their new locales. And yes, maybe these small businesses will lease offices, warehouses, or plants locally. Maybe then we'll see nimble companies competing against the SF/NYC incumbents.
Optimistically speaking, we may even greater diversity in tech, as locals join the workforce and industries that were suffocated by SF/NYC costs find space to grow. In particular, I'm always perplexed that agritech, manufacturing, design, and entertainment feel the need to stay SF or NYC-based.
Maybe it plays out like this. However I think it would be other way round. People who do routine work which are basically human version of API calls may go remote. As their input / output is predictable and measurable they do not need to show up and hog 30-60 sq ft of real estate.
In my experience of IT work for last 15 years if I exclude first few years where I needed some hand holding from senior folks, most work related discussions happen via conf calls and conclusions are shared via e-mail/chat. Conf calls are common because teams/clients are distributed across geographies. I also noticed a trend where folks in same campus but different building or even in same building but different floor demand a conf call be setup because they can't be bothered to show up for a face-to-face meeting in conf room.
If remote work becomes permanent for a lot of people and/or social distancing lasts a long time, I would expect a number of changes to happen:
- Homes with more bedrooms will become significantly more attractive because people will want home offices (maybe one for each spouse!)
- Homes with outdoor space will become more attractive
- Quiet homes without noise from neighbors or the surrounding area will become more attractive
- Proximity to public transit, freeways, and downtown areas will become less attractive as the drawbacks will exceed the benefits for most people
All of this will tend to push buyers toward large suburban homes rather than apartments or condos. In the long term, I expect rents and sale prices for apartments and condos will drop for those reasons.
House prices might even go up, relatively speaking, compared to prices for apartments and condos.
What we are seeing right now is not that -- right now, what we are seeing is people unable to pay rent and landlords desperate for paying tenants.
I'm not sure remote work will drive much of that. Most families were already moving out of the cities into the suburbs. And young people want to be in the city for the social aspects and cultural aspects, and proximity to others.
I think what we might see is an increase in demand for bigger units in the city as a young single person may want a two bedroom place, one for their home office and one for sleeping, but still want to be in the city to be near all the cultural and social amenities.
And we'll also see increased demand for even bigger suburban homes as each spouse needs their own home office.
So I think we'll see increased demand for larger homes in both the city and the suburbs.
I don't think very many of the social and cultural amenities of big cities will come back anytime soon.
I think we are in for at least a year of social distancing and heavy restrictions on restaurants, bars, concert venues, sports arenas, etc. A lot of things that were previously considered amenities will now seem dangerous, such as public transit.
The rental market is losing it legs in SF for sure, though landlords are going to try and prop up their values however they can. Like a sibling comment said, giving free months rather than actually adjusting the rate. The funny thing is, they price these free months into the rental rate so it looks cheaper than it is.
Here's some anecdata from my little corner of SF. I know THREE separate homes trying to fill rooms, and it's going awfully. The rent is too high, and there aren't enough people looking for rooms.
My old luxury apartment building has cut rents by around $500 for a two bedroom, about 10% (though I think they're doing it by way of free months).
The luxury building down the street, Duboce, is also offering 2 bedrooms at about $500 off peak. They're also listing their rooms on craigslist.
I rent a flat with two others in San Francisco. They're both leaving the city, and rather than find another apartment, I'm going to leave temporarily too. Funny, the landlord could have just given us a reduction and sign a new lease. Unfortunately, he'll now have to contest for a dwindling pool of applicants or let the place sit empty.
My community has dropped prices 10% and is offering 1 month free (4 year old complex in north san jose). However they are not offering this to current renters whose renewals are coming up. They offered me a 0% increase and when I cited that the 5 other identical apartments are currently available for essentially 20% off (10% discount over 12 months plus one month free), they began been pushing the narrative that the rent will increase by the end of June and that I should sign now before they change the offer. So now its a waiting game.
You're actually in a pretty strong position. Normally to leave a lease you need to give notice, usually 30 days. But there is one time you don't have to do that -- when the lease ends.
If you lease ends on July 1, you can turn in your keys on June 30 and walk away. Your landlord knows this.
Rents won't go back up in July. Even if the economy recovers 100% in the next two weeks, most tech employers in the area are doing WFH until at least the fall if not next year or forever.
If your lease ends on July 1, start looking for a new place now, but don't sign anything. As soon as you find something tell your current landlord that you are about to sign a new lease but you'd much rather not go through the hassle of moving. If they say yes, great, and if they say no, at least you have a new place lined up.
Just make sure you take lots of pictures when you move out because your landlord sounds like the type that will nickel-and-dime you on your deposit.
>Normally to leave a lease you need to give notice, usually 30 days. But there is one time you don't have to do that -- when the lease ends.
Every lease I've ever signed required 30 days notice from either party to end the lease when the lease term ends, otherwise it proceeds on a month to month basis with no further action required.
Edit: Technically not required in California but confirmed that it was in fact required for a previous state I lived in.
This is not really an option in California in my experience. There is no automatic month-to-month conversion, and it's pretty rare as far as I can tell.
> Normally to leave a lease you need to give notice, usually 30 days. But there is one time you don't have to do that -- when the lease ends.
This isn't guaranteed. In my case (renter in North Carolina), even at the end of my lease I have to give a 60 day notice prior to the lease-end or else my lease switches to month-to-month automatically.
Check your lease, but at least on my leases, it says that it only goes month to month if you pay the rent and the landlord accepts. If you don't pay the rent, the lease just ends.
It's certainly a nice courtesy to let them know if you're leaving, but at least in California, it isn't required by law.
> This Lease Contract will automatically renew month-to-month unless either party gives at least 60 days written notice
of termination or intent to move-out as required by paragraph 35 (Move-Out Notice).
Mine is pretty clear that it's an automatic rollover, but fair -- every state (and lease!) is different.
> If you don't pay the rent, the lease just ends.
Oof, sounds like a nice way to end up with a bad mark against you nonetheless.
Good note, you are correct, my California lease says the same thing. Previous leases in other states were specific about giving notice but this one does not. In my opinion, this is worse for the renter than the landlord as the landlord can choose not to accept your month-to-month rent offer at the last minute leaving you stranded. I prefer the notice from either party route.
> In my opinion, this is worse for the renter than the landlord as the landlord can choose not to accept your month-to-month rent offer at the last minute leaving you stranded.
This is definitely a possibility. In practice it doesn't happen because it's a pain to find new renters, especially if you don't list and show the property ahead of time. Unless you're trying to get rid of a tenant it's unlikely to happen.
Also the tenant has other protections. If they won't renew your lease, they would have to evict you. A process that takes 30 days at least, and requires a visit to a judge. The judge would most likely side with the tenant on this one.
>If they won't renew your lease, they would have to evict you. A process that takes 30 days at least, and requires a visit to a judge. The judge would most likely side with the tenant on this one.
Why would the judge side with someone that is no longer in a contractual relationship with the landlord? I would certainly not risk the mark against my renting record.
Because judges are human and at least in the California cities tend to be more liberal and anti-landlord.
Also there are so many tenant protection laws, it may not be possible to just not accept rent. I've honestly never looked into it because I wouldn't do that to someone.
Same is happening in NYC. Renewals are either no change or seeing an increase while move ins are seeing discounts. My advice is to move out. You will either get a nice discount somewhere else or force your current landlord to actually compete. When you straight renew you have very little negotiating leverage and landlords know this.
Just let them know you are looking at other units with competitors, and that you expect them to price match. You have the power. Act like it, and they'll lower the rent for you. They don't want to carry that empty unit.
"Rents for a one-bedroom apartment dropped most in the cities richest in high-paying tech jobs, falling 9.4% in San Francisco compared with May of 2019. In Mountain View, home to Google, rents fell 15.9% year over year, while in Apple’s hometown of Cupertino rents dipped 14.3%, according to the rental search engine Zumper. In San Bruno, where YouTube has its offices, rents tumbled 14.9%."
This really doesn’t match my personal experience at all. I live in Mountain View (work at G) and pay 2k for a 1 bedroom (non luxury).
Lived here 3 years and pretty happy with it but I checked Craigslist and padmapper last week for some of these supposed 15% rent discounts and found rent to be pretty much the same as pre pandemic.
This is anecdata and I’m using human memory to compare rates per location/amenities but I think I would be noticing even 10% decreases... and I’m just
The 15% drop is in actually signed renewals. The listings you're seeing are the ones that haven't yet caught up with the new market realities (rents seem to be somewhat sticky). These listings are aspirational, and aren't being signed at these levels.
I did this for a time in LA, but man, every time I see these rates, I'm just so glad I'm not there. I pay ~2k for a 3 story house, 5 bed, 3 bath, jacuzzi, 2 car garage, a smallish yard, and full HOA thingys like a big gym/YMCA center, shooting range, 18 hole golf course, batting cages, big pools, and camping areas. Denver area.
Similar here (except I get paid a lot less to work on the other side of Stevens Creek from the big G). $2k is pretty much the very bottom of the rental market here. I'd imagine that the top and median are going to fall first.
This also might open many landlords eyes to how ugly their situations can get when they want to remove a tenant in Oakland/SF/Berkeley even if a tenant stops paying rent. I have two friends who are currently refusing to leave in-law units and it is quickly getting bad for their landlords ($30k deal to get one of them to leave).
That said I totally welcome this, part of the reason why our communities suck in the bay area is because everyone is renting. Owners have a vested interest in creating a nice place to live while landlords and renters have less reasons to care.
In Germany about half the population is renting. That in itself doesn't mean they're not fostering a community. The difference of course is, that in Germany there are very stringent renter protections, so tenants do usually plan to stay for long times (a good share for a lifetime).
You can't even evict people right now due to the emergency regulations. I wonder why the landlords are even bothering right now? Wait until after, evict for non-payment (one of the only easy ways to evict), then either try to collect or send back rent to collections and claim it as a loss and move on.
We were once evicted from an in-law unit without cause. They wanted the space back for use as a home office. (I suspect that’s extremely common these days)
In hindsight, we should have held out for a “make us move” offer. $10K’s is typical for that sort of situation in Berkeley.
We’re too nice, and moved without a fight, in return the landlord came up with some BS reason to withhold our security deposit.
Before the bump in the move-out offer minimum, they could have done an Ellis Act eviction if they wanted to recover for their own use while paying you the minimum possible. (Actually, Ellis Act is one of the only eviction types allowed right now.) That said, it sounds like they wanted to have their cake and eat it too, so it's too bad you didn't feel like taking them to task.
Umm... while they can't withhold your security deposit, squatting someone's in-law unit is obviously immoral. It's not your property, if they want it back, you have to move. Holding them hostage for $10k is scummy.
Rent control throws a wrench in this simple model. In Berkeley, the tenant almost exclusively has the right to terminate the tenancy. Expiration of lease or month-to-month term is not actually grounds for the owner to terminate the tenancy.
Although I might benefit from this, but I have to point out that this is supposed to be the intern season, and there were always a surge in rent during this season in the past.
That is not happening this year. So comparing to last year, you are seeing a larger drop, but it will left to be seen whether the scale of this drop is temporary or long-term.
That said, the Bay Area landlords have benefited from the bloom for a decade, they are losing anything significantly, not yet.
Bay Area and indeed, California landlords have increased rent at every opportunity for more than thirty years; multiple studies show that rent in the 1970s was more like ten percent of a working income, that has changed to thirty percent+ across the entire State of California (on the other hand, San Francisco itself has always been pricey, at every stage for a hundred+ years).
Isnt it somthing that the last thirty years is exactly when millions of US adults had turned thirty+. The cost structure of a young adult in the last thirty years has been nothing like the previous thirty. Building new housing (and rental units) has been substantially restricted across generations in California, but it got particularly noxious with the six-figure twenty somethings taking the rentals, while the other ninety-eight percent of the population just ate the cost increases at every turn. These are economic facts and are documented extensively at the Terner Center at UC Berkeley among other places.
As an anecdote, I left the Bay Area (and California (and the USA)) in January.
Amongst my cohorts/closest friends I know in the Bay Area:
- one moved to Colorado a year ago.
- another moved to Berkeley from SF, to buy a house.
- several moved to New York City and Seattle.
- a few moved back to Canada.
In my time in the Bay Area, it always seemed like there was constant migration: some folks leaving, some folks just arriving. Usually more of the latter.
Due to the current pandemic, I'd definitely guess that the rate of folks leaving hasn't changed significantly (compounded with layoffs, etc.) but the rate of folks arriving certainly has! No interns are flying out, no recent grads are moving in.
If things "return to normal" then I'd expect this to revert, but those people aren't just milling about waiting for the gates to open. They're finding other opportunities, and when the dust settles, the opportunities in the Bay Area aren't going to be the highly competitive opportunities they once were.
Don't underestimate how many extra people are now leaving because they are working from home for the indefinite future and can get a lot more for their money (and lower SALT) elsewhere.
I'm in NYC and we are strongly considering moving out when our lease expires in July. Google NYC isn't reopening at least through the end of the year so it doesn't make sense to continue paying a lot to live in a one bedroom apartment that is sub-optimal for multiple people to work from, especially while most of the typical amenities of city life are closed. The main reason I lived here was for a short commute and that's irrelevant now.
New grad anecdote: If not for Covid I'd be in Palo Alto right now. Instead I'm buying furniture to set up an office in my parents basement in Toronto. My sister and her fiance already grabbed the extra room on the first floor for the same thing (otherwise they'd be in two different cities with apartments).
All three of us are sort of "just milling around waiting for the gates to open". Not literally, any of us could technically be in the city our workplace is in today (the border isn't closed to work related travel), but we are waiting to be required to show up in person at the office before we move (back). In the meantime we'd rather be here where we have lots of space, good company, no rent, and so on.
As a not small anecdote, I live in a new building in Mountain View -- about 300 units. When I moved in last Summer, there were only 4 units available. It's currently over 50% vacant.
My rent was $4300. They're currently renting the same unit on a higher floor for $3500.
He probably can at the end of the lease, but usually not in the middle. I've done it, but it seems to take an open-minded management company.
It also depends on things such as how much money/time/effort the landlord want to put into "turning" an apartment, the number of corporate long-term rentals a complex has, what the landlord thinks is going to happen in the near future, and even what property management software the apartment complex runs.
I think my last long-term least set the penalty at one or two months' rent, but your results may vary. In California, if they can find someone else to rent the unit, you're only on the hook for the time the unit was vacant.
Many REITs have scooped all large apartment complexes in the bay area. So, they have been jacking up rents ad infinitum. Now these REITs got their comeuppance. One on Villa St is owned by Avalon Bay $AVB
The mega-REITS who bought all the affordable apartments in the bay area deserve what is coming to them. I rented a slummy 500 sq ft apartment (literal roaches in the kitchen) in Mountain View for $2000/month back in 2015 and just last fall, fully 3 years after moving out, I got a shakedown letter from them demanding I pay up some $300 "overdue balance" or else they fuck up my credit score. This is the first I ever heard of it. Of course I paid because my credit is worth a lot more to me than $300, but I was just thinking about how somebody in a less privileged position would feel getting a notice like that.
If you've got the time you should file a small claims against them for the $300. They'll most likely cave and just give you the $300 back (minus the court costs of $30).
I live across from a high rise in downtown SF, can see clearly into over 200 units in that building (mostly studios and one bedrooms), and have been taking pictures over the past few months to track vacancy.
In early March it appeared to be ~2%. Now I count over a 10% vacancy rate.
Yeah. I was driving through Mountain View & Palo Alto yesterday and basically every apartment complex has a "For lease!" sign on it, many with generous move-in specials. The steady stream of moving vans leaving the area hasn't abated, either - it's the end of month, and I've heard at least 3 of them being loaded up in my neighborhood in the last day.
I suspect rents are going to fall further, too, because there are still a lot of vacancies. They're down maybe $200 on a $2000/mo 1BR, which is a lot in percentage terms but is still an awfully high rent when about 20% of units are vacant.
Lots of employers are remote until the end of the year. There is no good reason to renew or get into a new lease right now. It won't be clear whether rent drop is a real change until things are back to more normal.
Might also be that people are preferring to not move in the coming months (thanks to COVID-19) and so the units that _are_ on the market simply aren't finding many buyers.
I'm actually looking for a new place in the Bay Area next month -- some units have their sticker price uncharacteristically low for sure; many have some kind of specials running too, like first month rent free. I asked a few leasing reps if this is due to the current situation and they invariably say these specials have always been in place off-and-on throughout the years, but perhaps that is just a convenient statement to convince prospective tenants that their "desirability" is quite inert to general market conditions?
No, first month free or similar incentives has been common for at least fifteen years in the Bay Area. It's sadly also not uncommon that the first lease is considerably lower than following ones (for no other reason than the landlord betting on the inertia of the tenant).
First month free has definitely been around at times, but I think less so in the most recent pre-COVID years. This article mentioned we might start seeing 2 months though, which I think is much rarer.
My complex charges existing tenants greater than 5% more than new ones because they know that few people want to go through the pain of moving out. I haven been able to use the obviousness of this to keep negotiating the "new tenant" rate with them.
Supply increased significantly due to condo and SFH owners opting to wait it out until 2021 rather than test the sales market (listed as rental and willing to offer competitive prices since they’re sensitive to vacancies). This is driving the General strength in sales pricing for Bay Area housing. Demand for buying has come back strong in May while supply’s return is slow. I do see listings picking up in the last 2 weeks. Summer will be interesting.
And don't forget the impact to demand of university enrollment. Very interested to see what will happen to rents around Palo Alto once the Stanford grad residences are complete and Stanford finalizes its plan to resume the fall and winter quarters.
I believe they are contrasting the supply of property used for real estate sales vs for rentals. Owners that would have put their properties on the market are supposedly holding off on selling and instead listing them as rental units. An increase in availability of rental units would drive down the price of an apartment.
The prices I'm seeing right now on craigslist are tending more towards 30-50% decrease, not 10-15%
It is pretty insane, I don't see why anyone wouldn't move to a new place. The only thing that is making me think twice is that I'm in a rent controlled place right now and there's no way I would move to a non-rent controlled place.
You could also see a price drop for many reasons - increased supply [which is happening], failed IPOs, reduced incomes etc. Last year, a ton of apartment supply came on the market, with 10K units in Oakland alone
At the same time, you have to also keep in mind that apartments in the Bay Area frequently get rented after a single, 15 minute open house, set at the convenience of the property owner or leasing agent. This does not seem to be happening right now, based on how my & my girlfriend’s apartment search has been going. We’ve also been seeing insane move-in incentives, like 2 months free rent, which I’ve never seen before. I’d love to see if there was more data about it, but my experience is leading me to believe the price drops are real (not statistical aberrations due to a small sample size), and likely caused by the immense negative demand shock we’ve been experiencing in the economy at large.
I read a newspaper article just yesterday which stated that the average annual turnover rate for an apartment complex in the United States is almost 50%.
My office has announced WFH through the end of 2020, with permission to work from anywhere and no changes to compensation during that time. I would estimate 1/3 of people have moved out of the Bay Area as a result - many moving back home to stay with family or friends. Saving 6 months of Bay Area rent is a big deal.
The folks who haven't moved out of the Bay Area have mostly moved to the distant exurbs, expecting (probably correctly) that even if we do "return to the office" in 2021 they'll likely be able to continue to WFH 2-3 days a week, thus the commute won't be as painful as it would otherwise be.
But you're comparing the rent in a small part of one city to the average rent for an entire city. One could cherry pick the rent in a comparably small neighborhood in San Francisco (the Mission, the Marina) and find it even higher than in Kendall Square.
$4000/mo for a 1-bed in Cambridge seems high to me, but I guess I am not surprised. Kendall is mostly new developments that I would describe as "premium mediocre"; nice, but not nearly as nice as you would expect for the money. It's also very close to a lot of offices so rich workers pay a hefty premium for that convenience.
I'm paying $3200/mo for a 2-bed in Central Square (1 subway stop away, still in Cambridge) in a much older building. Moving here from the Bay Area in 2018 made that feel like a good deal, but even I'm looking for a bigger place further out right now.
You’re seeing something I’m not then. I’ve kept my eyes on the peninsula market for years and there is no 30-50% drop. Most single family homes I’m looking at are experiencing no drops at all. Condos and apartments - nothing too out of the ordinary either.
I live in the greater Boston area and recently all suburbian homes I've seen sold for more than the asking price. I'm not following rentals so cannot tell. I don't think prices gonna drop any time soon. I hope I'm wrong.
Boston has tech but smaller than SF. It's big on pharma, hospitals, and universities. Such industries cannot switch to fully remote so change here might not be as drastic as in other places.
Houses are still selling for over asking in the Bay Area as well, although I did see an article saying 2019 prices were down 1.9% over 2018. Rentals are a different market.
Rents IN SF other than downtown actually seem stable or marginally lower except for downtown and SOMA coz people are running away from downtown due to homelessness among other issues.
Also colleges are closed so when colleges open in Aug/ Sept, many students will be back who left this year due to the COVID crisis raising the demand. This summer the demand is lower than ever due to COVID and homelessness.
I don't know, these things tend to burn into your memory. Living in the sfbay I am moving out, things that drove me away are numerable. Covid-19, looting/excessive violence w/ riots, and before that a year earlier random power outages due to wind affecting millions (from pg&e), also out of control wildfires burning up large areas of the state. Combining that with the highest taxes in the US and both me and my wife in tech with great salaries but not being able to afford pennisula/sf area(owning a house) makes anywhere but here look amazing.
Incidentally, I think this is the real harm of social media. I really believe our collective attention span is being decreased by infinite-scrolling feeds of content that demands nothing of the user other than clicking a little heart icon.
Long term, sure. But there's little point in paying $$$ for a tiny place when everything is closed due to Covid. Why not decamp for the suburbs/parent's house for a year and save 20-30k?
The cost of renewing your lease and staying in the bay area vs simply moving out for the year to your parents' house / LCOL area where if it really comes down to it, you can simply break your lease much easier is an easy trade-off.
I didn't decamp to my parents house because they are in the age group that's at risk for COVID-19, and I'd rather not kill my parents than save some money.
These people have figured out how to have their cake and eat it too. Major cities in the US have grown large enough that the ghettos can be reasonably far from the wealthier parts of town. That, plus racial profiling from both police and citizens, serves as an effective divide.
Amenities. Not having to drive everywhere. Good internet. Rural areas are more conservative in general (I'm talking about the cultural sense, not economic) so that can be stifling for a lot of people.
Time will tell if this turns into full-blown "white flight" like we saw in the 50's and 60's or is just a blip. With an aging population beginning to die off, I think you'll see more luxury homes open up in the sunbelt, which might also act as a draw.
I'm 45 and definitely considering my options for getting out of the Bay Area. Then again, I really, really do not like it here. If nothing else I'll be looking into taking advantage of cheaper rents to move up the peninsula and away from SJ.
Anecdotal but as half of a DINK couple who recently relocated to an exurban vacation property, our main reasons for being in an expensive city (office, culture, social gathering) have evaporated and I'd be surprised if they came back the way they were for years. Speaking as someone whose main desire in life was to live in a big city, the suburbs are looking pretty nice right about now (as, again anecdotally, they are for a good number of our friends in similar positions).
> I'd be surprised if they came back the way they were for years.
Depends on what you're looking for. The police managed to find and shut down an underground club mid-April[0]. I'll bet the police didn't find the only one.
I'd be very surprised if it takes more than a year. Thinking back to the airline industry post 9/11, the airlines were strongly motivated to reopen the skies. The situation's different, but as we learn more about COVID-19, we get a better and better picture on what is necessary for it to be safe to reopen. The Hubei restaurant airflow study[1] says it's possible to be in the same room as an infected person and not get sick.
We shouldn't rush to reopen, but we can be more proactive than just "hope it goes away", by, eg expanding testing.
Eh, friends in apartment buildings are looking to never live in one again it feels like. IDK how long that will stick. But yeah, they'd be looking to stay in the city, just somewhere with it's own door lol. But unless jobs start moving out too (or widespread remote work becomes both real and pleasant) I can't imagine a large urban exodus.
New York City specifically is no stranger to borderline apocalyptic scenes. All business trends cycle. The trend of profitable work being concentrated in megacities is not ending before this recession.
Anyone seeing a similar dip in the NYC metropolitan area? I've been casually watching rents and not seeing much of a dip. It seems that there are less units available as well, so perhaps that is counterbalancing a decrease in demand.
Streeteasy data [0] shows a drop in listings but no fall in asking rents. However there has been a sharp rise in concessions - i.e. free month upon new lease signing. My guess is landlords are currently keeping apartments off the market rather lock in lower rents, and when they do need to move a unit they use concessions since they look better from an accounting basis. I think eventually we will see a fall in gross rents but it may take longer than expected.
Even before the pandemic it felt like 50% of places on Streeteasy had been listed with net effective rents in recent years... the current situation is probably just accelerating a trend that was already well underway.
Doesn't mean I'm not kicking myself for signing a 2-year lease on a place last fall, though. I love my apartment, I've been here 2 years already, and its a fair price, but I'm basically 8 months into a 24 month lease and could probably save almost 10k over the next 16 months if I had the option of breaking the lease and moving.
Interesting news. I've heard that real estate prices haven't budged much and with the stock market remaining relatively strong, I wonder if we will see a corresponding rebound in rent sometime soon.
I think real estate will follow later. I've seen price cuts of $100-200K on the units that actually sell. Real estate is sticky - many people hold the line on price hoping that a buyer will come along later - and the economic crisis is just beginning to hit the sector of society that's a potential home-buyer in the Bay Area. There's also a fair bit of pent-up demand that sees this as a bargain-hunting opportunity and will still rush in - price won't drop significantly until those buyers have all bought or changed their minds.
Real estate here bottomed in 2010 after the 08-09 recession. It took about 2 years to make its way from profits to stock prices to layoffs to home prices.
I think real estate hasn't really moved because supply and demand moved together. Fewer people moving around means fewer sellers and fewer buyers. Hell, prices could even go up if the number of sellers shrinks by more than the number of buyers shrinks.
This is happening a bit in Seattle too. I was able to negotiate a _decrease_ in rent after several years of 9% increases. 10% is the max allowed increase in Seattle if I understand the rules correctly.
Weirdly, I put my place up for rent in South Bay in April and got 10 applications in 5 days without any tours. So there is still underlying demand in the market
I'm curious how much this is driven by foreign students, specifically Chinese, staying home. On social media I've noticed the meme that China is peaceful and stable vs the USA which is currently still fighting the virus and plagued by massive unrest.
I think the lack of interns, tech layoffs, and WFH may be a larger part of it, I'm just wondering if there is any data out there on how it breaks down by category.
I would think that international students from China is not only a minimal amount of the population, but also that very few have even left. (thanks to China's "five one" airline policy making it very difficult to go back to China)
The SF market is extremely differentiated. The market is still tight in many verticals and not hugely changed for any landlord not already on the bleeding edge and pushing higher prices believing them to be reality. The towers are going to have huge vacancy rates since they practice this price “edge game” diligently.
My lease in Sunnyvale is ending in 3 months, already last month my landlord approached me and asked if I want to stay for an extra year at a 5% increase. I told him I'd like to take some time to think about it and see where things are headed, but I'll need to get back to him soon. My house is below market already from looking at Zillow, and even with a 5% increase it still will be, but I'm not sure what I should do (besides asking nicely to drop the increase). I'm not sure if/how this will affect big 4-5 bedroom family homes vs. smaller places. Young single people can just up and leave, for a family it's less trivial.
I've had that happen to me and I told them that I would move if they increase the price. I really didn't want to move, but I'm also too proud to let someone up my rent like that. It worked, they didn't increase the rent.
Yeah, we're both playing chicken I guess, and they're good landlords and I think the feeling is mutual; plus they really lucked out to rent to someone working at a very stable company with low risk of layoffs at the moment. So I believe I have better leverage at the moment, but if there are two things I hate, they have to be moving and negotiating.
Seems to be very localized ups and downs. In the core of cities prices are crashing and people are trying to get out. Meanwhile in surrounding suburbs prices are rising and people and getting into bidding wars.
It seems that many want to stay in region but not right in the core of things, especially if their companies are shifting to WFH where daily commute is less of a deciding factor.
so far it seems home prices are still high though. however, the data is kind of unnatural because many are not buying homes right now while many are not listing homes. I'm very interested to see how home prices in markets like seattle, nyc, and sf play out over the next year or so.
Holy shit! I just checked craigslist and there are a number of super nice place in SF now for an extremely good price. There's no great place for sale though.
I'm talking apartments that were above 4k/month which are now around 2-3k/month.
I think this is a good time for me to change flat.
I was thinking about moving to The Villages in San Jose and purchasing a condo there. I know that this blog is about rentals, but would someone like to comment about if I should purchase now or wait and see if there is a price decline. Thank you in advance.
The employers and employees is getting use to work from home.
It is just matter of time for certain percentages (20,30% or more) of folks decide to move out to Tracy, Sacramento, etc to just commute to work may once every 1,2 weeks or as needed.
There's an entire 1/8th complete housing development at Diablo Grande that looks like the result of a nuclear holocaust from last time someone thought people would commute 3 hours for the luxury of living absolutely nowhere.
I just rented 2 bed apt in peninsula - absolutely no drop in rent - 1 year lease is norm (could not find any month-to-month lease) and I was not offered any free rent for any weeks. Not sure where this plunge is happening!
Between Covid and the current protests/riots, I think we're going to see a major reversal of the urban renaissance that took place from roughly 1990 to the present.
A formerly tacky suburban bungalow with a fenced in backyard starts looking pretty good in a quarantine compared to a one-bedroom apartment where the only way outside is via a germ-filled elevator. Watching downtowns like Chicago's burn is going to make a lot of business rethink locating to urban cores, especially when remote work is proving to be highly effective.
Even if all of this passes quickly, the imagery and emotion will remain. Just like 3-mile Island effectively put an end to nuclear energy in the U.S. even though it was an isolated incident, memories of quarantines and burning police cars are going to do lasting damage to economic development in urban cores.
People are already moving out of places like NYC and SF, buying up houses in the surrounding burbs. It would be nice to believe that people will just forget this in a few months, but unfortunately that's just not going happen. You couple that with companies' newfound comfort with remote work, and you're looking at a long-term slump in investment in urban cores.
So many believe remote work will cause rent to drop. But if we end up in a situation where you work from home only part of the week, that could actually spike demand for larger properties.
Is the purchase price of a home or condo in San Francisco or the San Jose area being effected by the rent downturn? Thank you for any comments about that question.
Here's the last sentence of the article: "In addition a lot of Airbnb listings are being offered as regular apartments now, which could also increase supply and lower rents, Goss said."
"Goss" is Charley Goss of the San Francisco Apartment Association, FYI.
Its not the dip yet. Also these are rents, so you wouldn't be buying the property yet, wait till courts are even open for foreclosures and evictions as the moratoriums are still ongoing.
My luxury building and a few others I checked have slashed rent 10-15%, while also offering 6-8 weeks free, which is two months. That means the real asking rate in these properties another 15% lower. Thats a total of 27% lower.
You can try offering far less. I would ambitiously go for 60% lower than asking price and see what happens. Assume they're cash starved too.
No, but in a more or less normal market, they aren't completely disconnected. The rent-price ratio will not usually vary a whole lot (one of the markers of the Great Bubble was that the ratio was completely out of whack). Since units of housing are somewhat functionally the same whether you rent or buy, price changes in one part of the market will eventually catch up to the other.
Never saw allure of living there..sky high rent, smells of a homeless epidemic like no other I've seen and overall the desire to live in any big city with COVID and riots/protests is even more unappealing! Hopefully all that and remote work pushes many to buy in more suburban and rural areas.
I manage a couple of properties in the Bay Area, so I keep a close eye on these things. What I'm seeing is not a drop in rents, but an increase in $0 deposits and many weeks of free rent upon move in (sometimes 6+ weeks).
Landlords are very reluctant to lower rents, because with the statewide rent control that limits increases to 5% a year, we're incentivized to keep the rents high and give months of free rent, just so our base rate doesn't drop.