San Jose and Santa Clara are popular locations not only for home buyers but for renters as well. As you may know, it is less expensive to rent in this area of California than it is to buy. A look at the local trends for residential rentals shows there were several factors that pushed rates higher in recent years, however the market is now in transition. For rental owners this is something they may need to adjust to since steady rent increases has been the norm during the last few years. Managing rental properties, finding qualified tenants and marketing rental properties in changing market conditions can effectively done by local professionals that provide Santa Clara Property Management.
Factors Influencing the Local Rental Market
The high cost to purchase a home in Santa Clara and San Jose continues to drive the popularity of renting. Ultimately, several other factors currently influence the rental market, including each of the following:
- Income levels
- Supply of available housing
- Good employment opportunities
- Prediction of a 2020 recession
- Limited housing construction
- Limited availability of land for new building
During the last few years rental costs have continued to increase as a result of limited housing supply and higher demand as more Millennials enter the local workforce. Without higher income levels, many potential buyers will continue to rent rather than purchase.
Studies show the average income needed to finance a home purchase is out of reach for most individuals. Local residents need affordable places to live, and for most rental units provide this affordability. Finding the right place to live however, can be challenging and time consuming since vacancy rates have historically been low in San Jose and Santa Clara county.
Typical Real Estate Costs in San Jose and Santa Clara
According to the Santa Clara County Association of Realtors, the median cost of a single-family house in San Jose was $1,145,000 in June of 2019. Since that time the median price decreased slightly to $1,050,000 in August of 2019. Current expectations are that the trend in prices will be flat to slightly lower during the next quarter.
The cost to live in a rental unit is far less than the monthly mortgage payments (with a 20% down payment). The expense varies considerably based upon the style of rental unit chosen. The average monthly rent of a two-bedroom apartment in San Jose or Santa Clara is currently $2,776, while that of a one-bedroom apartment is $2,225. Currently, the average cost to rent a studio is $2,017 per month. High-paying tech jobs and inventory shortage has pushed rental prices through the roof in recent years, however recent trends on rental sites suggest relief may have arrived. Rental costs for properties in San Jose and other cities in Santa Clara county have declined during the last few months. Homeowners and property managers are reducing rental prices due to a growing number of available rental properties. Recent data from Trulia.com shows that the median rental price for all rental properties in San Jose has decreased 3-4% from a high of $3,460 in June to $3,350 as of last month (Sep 2019).
Recent Housing Data Reported by the City of San Jose
The City of San Jose presented a detailed look at rental trends for the second quarter of 2019 that was portrayed in the San Jose 2019 Housing Market Update Report. It shows average rental rates in San Jose have steadily increased by 1% year-over-year since 2002. A slight spike occurred between the years of 2007 and 2008, returning to the second quarter average of 2007 by the second quarter of 2010.
For 3-bedroom and studio rentals and excluding 1-bedroom and 2-bedroom units, average rental rates rose even faster quarter-over-quarter. More specifically, 3-bedroom rentals saw an increase of 2.7%, while studio rentals realized a spike of 2.4% in rates. However with a growing number of rentals becoming available during the last few months it appears that the short term market trend has changed to the downside.
This report also indicates that average vacancy rate is 4.3% which is below a healthy vacancy rate of 5% (the national average is 6.8%). Due to high rental costs in general, renters in the San Jose metro area pay 34% of their monthly income toward rent (which has actually trended lower during the last few years) than the national average of 28%.
Managing Rental Properties in Santa Clara and San Jose
Owning a rental property in Santa Clara and San Jose offers an excellent opportunity for investors to build wealth. A rental property comes with a lot of responsibilities, including selecting and keeping good tenants and overseeing management of the property. Fortunately, if you are a rental owner you don’t need to manage everything on your own. Valley Management Group has over 35 years of experience providing trustworthy and affordable property management services in Santa Clara, San Jose and throughout Santa Clara County. Call for a free property management quote and one free month of services when you sign up for their services.
Reviewed and Approved by Lloyd Kipp
Property Manager and Owner of Valley Management Group