California’s Rental, Housing Markets Defy Expectations in the Age of Covid

Rent Costs Decline Only Modestly and Home Prices Jump Across State’s Major Metros; Job Recovery Varies Significantly Between Regions

December 09, 2020 — California’s famously high-priced rental and homebuying markets have behaved in some surprising ways given the job and other economic losses suffered during the COVID-19 pandemic. Over the past year, with one exception, rents haven’t budged much, and home prices have climbed, and sometimes soared, in every single metro region of the state, according to a new analysis released today by Beacon Economics.

“The pandemic has underscored just how stubbornly imbalanced and unaffordable California’s housing and rental markets are,” said Taner Osman, Research Manager at Beacon Economics. “We’ve long suffered from a lack of adequate housing supply, but it’s quite amazing that demand has held firm and even grown given the unprecedented shock COVID-19 has delivered to the wider economy.”

For the most part, the places where rents have fallen have been high-priced and/or densely urban locations such as San Francisco, downtown San Diego, and tony neighborhoods in Los Angeles and the South Bay. Declines in these areas have largely been due to an exodus of renters who have left for less populated, less expensive suburban environments, according to the analysis.

“The effects of the pandemic are likely at work here as these trends appear to be related to both fear of the virus and perhaps more prominently, the major shift we’ve seen towards working from home, where you don’t need to be physically close to your place of employment,” said Osman. However, according to the analysis, the ‘demise’ of urban centers that has been suggested by many observers is highly exaggerated.

Major rental market findings by region include:

• San Francisco Metro (SF and San Mateo Counties): Pandemic-related rent declines have been sharpest in this region with the average rent per unit falling 9.6% ($3270 to $2957) from September 2019 to September 2020. The largest declines were primarily in the most expensive neighborhoods with the Marina/Pacific Heights sustaining a 15.8% drop. Across the region, however, rental vacancies rose just 0.6%.
  
• Los Angeles Metro (Los Angeles-Long Beach-Glendale MD): Rents in the Los Angeles metro have held fairly steady with average rent declining just 2.9% to $2073 per unit from September 2019 to September 2020. Like San Francisco, the largest decline came from one of the most expensive neighborhoods: Marina del Rey/Venice/Westchester with a 6.9% annualized decrease in average rent. Some LA neighborhoods sustained rent increases with the largest occurring in the Carson/San Pedro/East Torrance area (+3.3%).
  
• San Diego Metro (San Diego County): The pandemic has had only a minimal effect on rental costs in San Diego County with average rent virtually unchanged from September 2019 to September 2020 ($1881 to $1867). In fact, more of San Diego’s neighborhoods have sustained rent increases than declines. The largest increase occurred in the Escondido/San Marcos submarket (+3%) and the largest decline was in the La Jolla/ University City submarket, a more expensive neighborhood (-6.1%).
  
• South Bay (Santa Clara and San Benito Counties): The South Bay, the world’s leading tech economy and generally a very high-priced region, has experienced a pandemic-driven decline in rent but not at a level that might be expected. The region’s average rent decreased 5.1% from September 2019 to September 2020 ($2755 to $2614) with significant declines in Mountain View/Los Altos (10.2%) and Northeast San Jose (7%), but much smaller drops in most other neighborhoods.
  
• East Bay (Alameda and Contra Costa Counties): Rent in the East Bay metro has not been significantly affected by the pandemic. Average rent in the region stands at $2294 per unit, a 3.1% drop from September 2019 to September 2020. Unlike other areas of the state, the largest rent declines in the East Bay have not come from the most expensive or centrally located neighborhoods. The Fremont/Newark/Union City submarket, which is one of the furthest from downtown San Francisco, sustained a 7.9% decline in rent while the North Alameda submarket, which includes Oakland and Berkeley, fell only 2.9%.  

Without exception, over the past year, home prices and home sales in every major metro in California have grown significantly, and in some cases dramatically:

• San Francisco Metro: The median home price is up 8.1% and existing home sales have soared by an astounding 90.2%, suggesting pent up demand.
  
• Los Angeles Metro: The median home price has climbed 12.7% and existing home sales have risen 16.4%.
  
• San Diego Metro: The median home price has jumped 15.4% and existing home sales have surged 32.8%.
  
• South Bay: The median home price has increased 14.5% and existing home sales have ballooned by 36%.
  
• East Bay: The median home price in both counties in the East Bay have experienced a surge with Alameda County jumping 15.4% and Contra Costa County rocketing up 19.4%. Home sales have risen 32.2% in Alameda County and 35.2% in Contra Costa County.

The new analysis also finds that employment increased across all the state’s major metros in October 2020, the most recent data available, with each region adding back jobs lost during the course of the pandemic. The rate of recovery, however, varies significantly, ranging from modest in San Francisco to robust in Los Angeles. Employment in the Los Angeles metro now stands at 90.9% of the region’s pre-pandemic level.