Scott Safadi of Cal Bay Property Management has been witnessing a softening in the Bay Area rental market throughout the course of 2016. This softening was inevitable given the astronomical rent increases that we have seen over the past five years. Scott Safadi does not believe that it is a matter of hitting a price ceiling. Rather, it’s an indicator of a slowing in job growth, specifically in the high paying tech sector. Housing prices continue to rise and are at levels where most renters do not have the luxury to decide whether to purchase or continue to rent. 10% or 20% down is simply unrealistic for most, so renting continues to be a strong option. Read the article below for some more data.
Traditionally, landlords have always tried to get 12 month leases. Typically, if a shorter lease length is offered, the monthly rent rate goes up. Scott Safadi believes that this does not always have to be the case. It is often in the landlords interest to create a shorter-term lease. For example, a landlord never wants a tenant to move out during the months of November and December because so few people move during those months that it is very hard to fill a vacancy.
That being said, if put in a position to sign a new lease commencing December 1, Scott Safadi would advise offering either a seven or eight month lease at the same rate as the 12 month lease option. Tenants will often take this option to increase their flexibility and provides the landlord with an option to offer that tenant a new 12 month lease the following summer or to raise the rent at that time if the rent that was achieved in December was below-market due to the seasonal slowness.
The rental market in Silicon Valley is finally softening after 5 straight years of dramatic growth. In the past 45 days, rents have declined as much as 15% in some markets. This correction may represent the stabilization of the market, which could not have sustained double digit annual growth indefinitely.
Scott Safadi believes that rent growth along the Bay Area Peninsula should slow down in the coming 12 months, however, he does not expect a reduction due to strong job growth in the Western Bay Area. Typical applicants today have more than ample income to support the current rents. Those working lower paying jobs are being forced to the South Bay and East Bay in search of lower rents.
There are few things I’d rather see than interest rates staying nice and low. I wonder if employment is the primary metric at this point, since inflation doesn’t seem to be a major issue. If employment is the metric, it could be a while before we’re seeing anything near full employment in middle America. Does that mean we’ve got low rates for years to come?
If there is one reason not to accept an applicant for your rental house or apartment, it is that they have had a landlord/tenant conflict in the past, namely an eviction, judgement, or unpaid balance to a previous landlord. There is a small subset who are willing to go all the way down the path to eviction – that’s not the subset you want to rent to.
Scott Safadi couldn’t be more excited to see all of this rain and snow coming to Northern California. Think of all the great things that it brings:
1. Snowpack and rain to work towards alleviation of the drought.
2. Snowpack to ski and snowboard on!
3. Lower water bills since we wont need to irrigate our lawns and gardens.
Bring on the rain!