Bay Area rents are falling — market might be turning

Seven-year upward trend halted by small decreases: 0.9% in S.J., 0.6% S.F.

There’s new hope on the horizon for harried renters struggling to afford the Bay Area’s astronomical prices: Rents have started falling.

Median rents dropped in September and August compared to the year before, reversing an upward trend of more than seven years that has pushed prices into the stratosphere, according to a report released Thursday by online real estate company Zillow.

The decreases weren’t huge — just 0.9 percent in the San Jose area and 0.6 percent in the San Francisco area last month. But one economist says the shift signals a much-needed cooling of the region’s overheated rental market, which has priced even well-paid workers out of the Bay Area and sent them hunting for cheaper homes in the Central Valley and beyond.

“This is obviously welcome news for renters in the Bay Area who have seen rents rise very quickly over the past half decade,” said Zillow senior econ-

omist Aaron Terrazas. “But it’s also very important to keep it in context.”

In the San Jose area, last month’s drop means tenants are saving about $30 a month compared to the year before, he said. In the San Francisco area, it’s just $20.

And rents remain high. The median rent for apartments, condos, co-ops and single-family homes in the San Jose metro area, which includes Santa Clara and San Benito counties, was $3,499 last month — down from $3,532 the year before, according to Zillow. In the San Francisco area, which includes Alameda, San Mateo and Contra Costa counties, the median rent was $3,399 last month — down from $3,419 the year before.

August marked the first month in more than seven years that Bay Area rents dropped year-over-year, according to Zillow. Since Zillow began keeping track in November 2010, rents have jumped 46 percent in San Jose and 50 percent in San Francisco.

The recent slowdown comes as the Bay Area’s housing market also is tapping the brakes, with real estate agents reporting homes are taking longer to sell and aren’t fetching quite as much money as they did several months ago.

The cooling trend extends beyond the Bay Area; rents are dropping around the country. Nationally, the median rent dropped 0.2 percent last month compared to the year before.

But while the Bay Area’s rental market slowdown gives tenants hope of a reprieve from punishing prices, it may not be time to celebrate yet, said Nathan Ho, senior director of housing and community development for the Silicon Valley Leadership Group. Ho doesn’t believe prices are falling because of a natural market correction or because cities are building more homes. Instead, he credits something more alarming.

“It’s not because we’re finally meeting the demand,” he said. “It’s that folks have gotten so frustrated and fed up with finding an affordable place to live that they’ve moved on.”

People are leaving the Bay Area more quickly than they’re moving in, according to a 2018 report by the Silicon Valley Leadership Group and Silicon Valley Community Foundation. An average of 42 people per month left San Francisco, San Mateo and Santa Clara counties in 2016, the most recent year for which data was available. That’s a dramatic change from the year before, when the region gained an average of 1,962 residents per month.

Many of those fleeing the Bay Area are heading to cheaper cities such as Portland, Oregon; Austin, Texas; or Boise, Idaho. And every person who leaves is one less tenant to fight over the Bay Area’s limited supply of rental units, which could push prices down.

“This might be the beginning of the tipping point in terms of folks not wanting to deal with the housing crisis anymore,” Ho said.

Terrazas believes the slowdown will continue. While Bay Area rents are unlikely to plummet, the period of skyrocketing rents is over, he said.

“It has been so hot and so fast for so long,” Terrazas said, “that it’s long overdue for a little bit of a normalization.”