Something’s going on with the local rental market. After nine months of historic free fall, it appears to have stabilized, which leaves us wondering: Why?
It’s no secret that the median rent for a one-bedroom apartment in San Francisco has dropped by almost a quarter in the past year. It’s been documented (celebrated?) ad nauseam. Even after that, the city entered 2021 owning the country’s most expensive rental market: $2,680 for a one-bedroom apartment. That’s a fever dream for locals used to paying $4,000 but still 14 percent more than they pay in No. 2 market New York City.
With that market continuing to tumble, though, consumers are wondering where it stops. Maybe never, the hope goes, or at least for as long as it takes for San Francisco to re-transform into its old self: a livable mecca for artists and eccentrics, free of tech bros, etc. It’s a city of dreamers, after all.
Don’t hold your breath waiting for this one, though. Sadly, for fans of a reborn Barbary Coast, our rents are no longer falling. Per national rental website Zumper, they stopped falling in November. Last month, in fact, they began to rise. Barely, but still.
It’s too early to call it a “recovery,” but rents stabilized three months ago and rose 0.8 percent in January. We’ll know more next month but it does seem like the dizzying plunge is over, or at least on hold, which brings us back to the question: Why?
Did everyone heading to Austin get as far as Modesto, see all the pickup trucks and hang a quick U-turn? Did all of those big investors who’ve been snapping up units from distressed small landlords just decide enough is enough and start jacking rents back up?
It could be either but I think it’s something else. People are still leaving San Francisco; not as many as you’ve been led to believe, and despite what you may have heard in the New York Times, there are still plenty of 30-something tech heads living locally. No, I think it’s something simpler, something endemic and maybe unchangeable to way we live in the Bay Area.
San Francisco is a city of hyper-aware would-be real estate experts and pundits. It’s not quite our religion — progressive politics is — but we take it very seriously and we never look away. Don’t believe me? Take a look at some comments on Socketsite; try to find someone not convinced they know exactly what comes next. All the experts are wrong; I’m the one who knows.
Everybody wants to be that person, the one who bought at the absolute bottom of the market and sold at the absolute top while the lemmings sat on their properties and lost precious money —the person who got into a sweet apartment for hundreds less than those other suckers.
In San Francisco there’s the basic market premise of supply and demand, plus something else: perceived supply and demand. Opinions — of actual pundits and what I guess is the real estate version of street traders — count, so three months in 2020 of hearing nonstop that everyone’s leaving town can impact the market almost as much as actual market factors like inventory levels and general economic health.
It’s sort of like how in 2008, according to Realtors at the time, people simply stopped buying houses because they were so spooked by what they were reading in the paper. There were plenty of buyers, I remember hearing at the time; they were all just sitting on the sidelines, waiting to see what came next.
Two years later they’d had enough of waiting, decided that the bottom was here and injected enough consumer rocket fuel into the market that the next boom made the old one look like it came from a pop gun.
This time, it looks like November was when consumers decided the market wasn’t going to go any lower… so it didn’t. The renters called the bottom and began looking to get in on great deals. Nothing else had to change. The bargains were too good to pass up. Eventually, rents stabilized. Over time, they’ll likely begin to rise. Power to the people, baby.
Let’s keep an eye on this as we move forward into 2021. Maybe it’s a dead cat bounce, and rents will resume their free fall in spring, but I don’t think that’s the case. More likely, I think, it’s what eventually happens when savvy consumers watch the market tank for most of a year and then decide to prove they’re the smartest person in the room.
Larry Rosen is a San Francisco-based writer, editor, podcaster and recovering former Realtor. He is a guest columnist and his viewpoint is not necessarily that of the Examiner. The Market Musings real estate column appears every other week.