A Tale of Two Markets: SF Rentals Vs. SF Homes

The Chronicle reminds us, lest we haven’t noticed, that while the housing market is at a record low, rents are at a record high. To quote:

“The city’s rental market has shown remarkable resilience even as home sales dropped to their lowest level in decades and median home prices have begun to decline after years of seemingly unstoppable growth.”

Indeed, records show ”studios in the Marina are renting for more than $2,000 a month, with two-bedroom apartments in the neighborhood going for more than $4,000 a month. The cost of renting a one-bedroom unit in the Mission has climbed to about $1,400 a month, while two-bedroom apartments are going for close to $3,000.” In my own neighborhood, the Golden Gate Heights, the 3 bedroom below us has jumped from $2800 to $3400, and though it took a whole 10 days to rent, $3400 it shall be.

Some people may be scared off by the sales market: this could have two effects, both of which would influence the inflated rent prices. 1) Potential buyers could be sitting on the fence, afraid to dive in, or waiting to see if prices drop. 2) Sellers may be unable to command the market as they want to, and if they can’t get their asking price, they may instead rent (at these high rates) and wait until things turn around to sell. Whatever the reason, rental vacancies are at 4% or less city-wide, so the demand is definitely high.

Would potential buyers be better off buying now that rents are becoming so insane? Here is a 3 bedroom/2 bath townhouse in the South of Market at 1065 Natoma St., recently reduced to $789K down from $819K. Using an interest rate of 6.5%, with 10% down you would pay approximately $4879 a month (including taxes and insurance), but the PMI (the penalty for not paying 20% down) would boost the monthly to $5662. Most people I know do not have 20% of almost $800K laying around loose, so an apartment like the one below mine- 3/2, with a garage- could cost you $3400 a month plus PG&E and cable/phone… or close to $6000 a month (plus the 10% down payment).

Okay, let’s widen the sample pool. Here’s a 3/2 condo at 66 Cleary Court in Japantown. With deeded parking, the sale price is $658K. With 10% down, the monthly (including insurance, taxes, and PMI but not including utilities or HOA) would be approximately $4722. Again, the seeming rip-off rental below mine is the better buy, at least by the month.

I could be wrong, but maybe another reason SF rents can climb so high without being knocked back is that so few people can afford to buy a comparable unit. If we want to live here at all, and we want something pleasant to live in, most of us have to rent. Period. So whatever the rents may be, we find a way to pay them (take on room mates, a second job, start riding our bikes, etc.). Those same measures won’t yeild anywhere near $800K, unless that second job involves large scale sale of narcotics, so… we rent on.

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Art credit: Irvine House Blog