Although JLee Realty does not handle rental properties for clients, we watch what is happening in it to better understand Santa Clara real estate. On Sept 17, 2023, the San Jose Mercury News published an article titled “Bay Area rents see biggest drop in 27 months“. The article presents the ease of finding a one-bedroom apartment near Lake Merritt. The article cites ApartmentList.com as a source for the trends they cite, including a 3.1% year-over-year decline for the San Jose/Sunnyvale/Santa Clara metro area.
The housing rental market has weakened, but the headline could create a misleading impression. The sky is not falling for the rental market. Look at the graph below created by Zumper.com.
The peak rental price for a 2-bedroom apartment was reached in Aug-Sept of 2022. The “biggest drop” is being calculated from a price peak and isn’t a good choice for judging long-term trends. I’m looking at two-bedroom rental trends because a prospective home buyer or seller is not likely to use a one-bedroom apartment as an alternative to a house or townhouse. Zumper reports current near-record rental prices for 3-bedroom apartments.
The general trend we are seeing is that one-bedroom housing does not have strong demand. Nothing appears to be happening that will lead to lower housing costs. “Affordable housing” proposals seem to be focused on small housing units that are not wanted by anyone who can afford an alternative. House prices have dropped from their peak at the beginning of 2022. Other than that peak driven by interest rate changes, prices have been relatively flat, which means the typical costs actually paid by buyers are increasing because of increased interest rates.