The San Diego rental market continues to be robust with a less then 4% vacancy rate and that trend is expected to remain throughout 2017. Nevertheless, the rental market is fluid and poised to undergo some changes in the new year with the following 5 areas most notably impacted.
1) Interest Rates: If you’re wondering what interest rates have to do with the rental market, the answer may be more then you think. In 2017 interest rates will have an impact on the rental market as they are expected to go up, how much, well that’s anyones guess but regardless they’re expected to be on the rise or at least that’s the public’s perception.
Not knowing when or how much interest rates will increase causes uncertainty and people hate uncertainty so they tend to sit and wait for direction. What does this mean, well for tenants wanting to become homeowners the uncertainty will force them in one of two directions. Some will take the plunge and purchase that $550,000 entry level fixer in a marginal neighborhood they swore they would never live in, but at least they’ll finally exit the rental market and become homeowners.
Others, who were on the fence barely able to afford a mortgage with last years interest rates will not fare so well. Even a slight upward tick in interest rates will move the goal post once again making home ownership unaffordable forcing them to continue to rent. The icing on the cake for landlords is that more people fall into the latter scenario then the former resulting in more renters on the horizon.
2) Inventory: County wide, San Diego continues to suffer from low housing inventory with developers unable to keep up with the growing housing demand. In 2017 this trend continues with the exception of the downtown area. Downtown San Diego’s hottest neighborhood the East Village is seeing another boom similar to the 2002-07 condo expansion but this time not as crazy and the units aren’t for sale.
In 2017 more rental units are being added to neighborhoods such as The East Village, Little Italy, & Cortez Hill. These units are modern, hip and offer everything that millennials are willing to bypass pre wifi wired rental condos for.
3) Affordability: Extra Extra read all about it! No relief in sight for renters. The San Diego rental market is being mentioned along side the San Francisco & New York markets when it comes to lack of affordable rental housing. In December of 2016 the average rental rate for multifamily housing was $1,947/Month and it’s projected by December of 2017 to increase to $2,059/month according to advisory firm Berkadia in their recent 2017 projection report.
The Zillow rent forecast expects the median rent value in San Diego to increase 4.6% with an end of year average rental rate of $2,540/Month. see the chart below
Although this may seam like a win for landlords, the steep trajectory of rental rate increases coupled with flat income rate increases may have opened the door for more legislative discussion on the scary subject of rent control in the San Diego market. Let’s all take a deep breath in and slowly release out as we ponder that thought.
4) Competition: Competition in the rental market was hot in 2016 and all indicators point toward an even hotter 2017. Every landlord believes their home, condo, or apartment unit deserves the highest rental rate in the area and I happen to agree. I believe every landlord should feel that way but I’m also realistic and understand that not every landlord will receive the highest rental rate and that may be alright too. In 2017 the competition for tenants will be even tighter as newly remodeled flip homes, renovated condos, and new build apartments hit the market competing for tenants.
5) Expectations: Regardless of where your property is located, renters are now expecting a lot more in exchange for forking out a hefty rent each month. If you want quality tenants then expect to offer a quality rental property with the following features in your rental; Matching modern appliances, modern countertops (no laminate), newer flooring (carpeting, tile or laminate wood), updated bathrooms, washer/dryer and yes ample parking- Landlords please stop asking to store your belonging in the garage.
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Written by Salvatore Friscia, owner of San Diego Premier Property Management a full service residential property management company offering Worry Free property management to the greater San Diego area since 2004 and TenantFinder.com.