Bay Area apartment rental prices dip as economic anxiety mounts

After a year and a half of steady increases, rental prices for Bay Area apartments are falling — a rare bit of relief for renters as economic anxiety ripples across the region.

The drop signals a return to seasonal trends as the colder months approach and fewer people move. But it’s likely also a reflection of recession fears, tech sector layoffs and the rising cost of goods tamping down demand in the country’s most expensive rental market.

“Folks’ budgets are getting squeezed not just when it comes to housing, but when it comes to their day-to-day expenses,” said Apartment List Senior Economist Chris Salviati.

In both the San Francisco and San Jose metro areas, rents are down around 2% from their most recent high in August, double the nationwide drop during that time, according to data from Apartment List, a rental listing site.

The median monthly cost of a new lease for a one-bedroom rental in the San Jose metro area, which includes the entire South Bay, is $2,240. In the San Francisco metro, which includes the East Bay and the Peninsula, the median rent is currently $1,932 a month.

Still, the two metros remain the priciest of any large U.S. population center. They’re ahead of San Diego at $1,916, New York at $1,897 and Los Angeles at $1,753.

The price declines are the latest lurch in what’s been an unpredictable ride for the Bay Area rental market during the pandemic.

At first, rental prices in the region’s larger cities cratered by as much as 25% as renters fled to the suburbs and less expensive parts of the state and country. Rents began to rebound last year as public health restrictions were lifted and more people returned, but the Bay Area as a whole was spared from the soaring price jumps seen nationwide. Now, rents are declining again.

In some of the region’s hardest-hit urban hubs, rents still haven’t returned to pre-pandemic levels, even as prices made a steady climb over most of the past 18 months. Median rents in San Francisco ($2,339) and Oakland ($1,531) are at least 10% lower than in March 2020.

“The Bay Area is still a bit of an anomaly,” said Salviati, noting the popularity of remote work here is likely a factor because people moved out of the Bay Area, reducing demand.

Marika McHugh, 32, recently moved to San Francisco from Hawaii to live with her boyfriend at the Parkmerced apartment complex on 19th Avenue. She said she didn’t have much competition securing an apartment at the high-rise towers, where rents start around $2,800.

“It’s comparable to Hawaii, so it wasn’t surprising for me, but it’s still really expensive,” McHugh said.

Salviati said with inflation remaining high, people are increasingly moving in with roommates or family to save money. That reverses a trend of more renters getting their own apartments, he said, possibly a result of rising incomes during the pandemic.

In turn, apartment vacancy rates across the Bay Area are creeping back up to near or above 5%, not far behind the 5.5% national rate, according to Apartment List data.

At the same time, some renters may be putting off finding a new apartment because of spiking consumer costs or worries about a coming recession. A recent spate of layoffs at big tech companies, including Oracle, Netflix and most recently Twitter — amounting to thousands of local job losses — could also be convincing people to stay put.

“We’ve got more inventory starting to become available, and that’s collided with a decline in demand,” Salviati said.

That dynamic, he said, should continue driving down rental prices at least into next year, barring a severe recession.

Michael Lane, a housing policy expert with Bay Area think tank SPUR, agreed that rents should keep declining, but he doesn’t expect the market to suddenly collapse.

That’s because people who can’t afford to buy homes will still need to compete for limited available units, which have only become more scarce as apartment construction has stalled out in recent years, he said. Meanwhile, rising mortgage rates, which topped 7% last month, will likely continue squeezing would-be homebuyers, forcing them to remain in the rental market.

“The bottom line is,” Lane said, “this will remain a very expensive market.”