Press Release


Is a rental housing bubble forming in California Wine Country?

July 22, 2020 - By Jeff Quackenbush

Evidence may be growing for the flight of residents from dense urban areas such as San Francisco to suburbs such as the North Bay due to the coronavirus pandemic.

On one side is a noticeable rise that real estate professionals are noting in demand since April for single- and multifamily rentals in Marin and Sonoma counties. On the other side is new research that suggests much of the home-shopping in the San Francisco Bay Area is happening in the same area as the resident.

After an surge in demand for single-family rentals in San Francisco and Marin County in the second half of last year following a sleepy first half, the market paused with the shelter-at-home orders in mid-March then resumed in April, according to Christopher Barrow, co-founder of Foundation Homes Property Management, based in Kentfield. That’s dramatically changed in the second quarter.

“We saw an increase in activity, with people leaving dense areas such as San Francisco to Marin. In May, June and into July, the increase in activity feels like an artificial pop, and I anticipate it will fall off cliff by the end of August.”

Here’s what the Marin single-family rental market, estimated to have over 10,000 homes, was like for the second quarter: Of the 62 rental homes from Sausalito through Novato leased through June 30 via the regional BAREIS listing service, the average rent was $7,400 a month, or $2.97 a square foot, and days on the market were 42. Pricing was up 81% from the first quarter, which ended with the beginning of the economic lockdown, and homes leased 22% faster. But compared with a year before, the time on the market was the same, but the average rent was just slightly higher, $3.42 a square foot.

Considering such a small drop in price and what’s happening in the economy, Barrow is worried about a bubble forming in the market.

Scott Gerber, a multifamily property brokerage specialist with Meridian Commercial said that while higher-end apartments in southern Marin are in demand from higher-income families exiting San Francisco and higher-rent areas on the Peninsula, he’s seen demand slackening off further away from the city. There’s active demand in Petaluma, but Santa Rosa has pockets of challenge. One property there has had 15% vacancy, which is higher than the roughly 5% vacancy seen in Gerber’s recent surveys of thousands of units in both Marin and Sonoma counties. Lower-cost apartment complexes in Sonoma County have had notable competition for tenants.

“The working-class person may have lost a job, and that may impact those properties,” Gerber said.

Katherine Higgins, who works with Marin rental property owners via Berkshire Hathaway/Drysdale Properties Commercial Group, has seen the more affordable units from San Rafael south having a mounting number of vacancies since the pandemic lockdowns.

“The more problems we have with retail store closures, where a lot of the tenants in these units work, the more we’ll see this,” Higgins said. “We’re just seeing the tip of the iceberg.”

Also affecting the market has been the statewide moratorium on evictions, rent-deferral requirements and the changing regulations regarding the showing of occupied properties to prospective tenants during the pandemic. Gov. Gavin Newsom extended the moratorium on residential evictions into September.

And there’s the requirement under Assembly Bill 1482, signed by Newsom in October, that landlords with leases in place before July 1 must notify tenants in writing that those units are exempt from the new law’s 10-year rent-control measures as long as the tenant is there. If tenants with existing leases aren’t notified by Aug. 1, the new provisions kick in.

“In the current climate we have an eviction ban, required rent deferrals and now thousands of homes accidentally covered by rent control. It is not simple being a DYI landlord in Marin right now,” Barrow said.

Barrow points to this sign of indicator of Marin County shift to owned versus rented homes: Properties in the $850,000–$1.5 million range are getting multiple offers and selling for higher than the asking price.

“Renters are looking for more stability, so they’re buying and not renting,” he said. “Landlords that are smart are letting tenants stay in their homes and are not trying to sell. Money is cheap, and it’s easier to get money to purchase, so that plays into lower volume of rentals moving.”

But 13 of the 62 Marin single-family rentals leased in the second quarter were high-end homes, renting for more than $10,000 a month, Barrow said. Those tenants have continue to be executives who are looking for more room to work from home and to entertain their children, he said.

Yet a recent report by marketing portal ApartmentList found that 33% of those surveyed were less likely to move because of the pandemic, and 17% said they are more likely to move, mostly to find less expensive housing.

“They don’t think it’s safe to move right now,” said Chris Salviati, a housing economist for ApartmentList. “Also they said they are not in a financial position to move. They may have considered an upgrade move and delayed that. Money for the security deposit and hiring movers may be overly burdensome or they had been laid off, so they are relying on the eviction moratoriums.”

The firm also just released a report on where users of the site were searching for a rentals, compared with where they were currently based. Using internet addresses to approximate the users’ current location, they found that 22% of San Francisco users were looking for units outside of that city, up from 20% before the pandemic.

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