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The “Looking Glass” reflects on economic and real estate trends through two distinct lenses: the “half-full glass” of the optimist and the “half-empty glass” of the pessimist.
Buzz: A migration out of urban California has created the country’s biggest rent gains in Golden State counties, far from the coast, as bargain hunters move inland.
Debate: When my trusty spreadsheet peek inside Apartment Rent data list for the 50 most populous American counties, he found a curious division between the 10 Californian counties on the list. San Bernardino, Fresno and Riverside lead the rent hike chart with Sacramento at No.9. Meanwhile, in the six counties closest to the coast – Alameda, Contra Costa, Los Angeles, Orange, San Diego and Santa Clara – rents have, at best, shifted sideways. What is behind this division?
Remember that the business limitations of the pandemic have cost many tenants their jobs. Such economic pressures have forced some households to move to cheaper and less dense communities far from the coast.
Others were looking for new ways of life, such as forming a couple with family or roommates. Some residents of financially sound apartments have become homeowners, taking advantage of historically low interest rates. And, yes, a moratorium on evictions kept another group in place – without paying rent.
Half full glass
California’s interior counties have long been viewed as an economic value, providing more affordable housing options for city dwellers.
A big barrier to inland resettlement – the long commute to work – has been shortened in the era of the pandemic thanks to work-from-home policies adopted by many employers.
Let’s look at 12 months rent, the renewal period for most tenants. My spreadsheet shows us that homeowners in the interior billed an average of $ 1,610 per month during the year compared to an average of $ 2,054 in coastal counties. Obviously, the good deals are farther from the Pacific.
These large inland discounts, mixed with the initial economic cooling of the pandemic, changed the state’s rental market.
In the 12 months ended August 2020, rents rose an average of 3.5% inland from the 0.1% decline on the coast, a relatively modest change as tenants started everything. just to rethink housing.
Soon, however, the pandemic’s shift to cheaper prices from inland regions and lower density surpassed the lure of a sea breeze.
As the economy reopened and the virus persisted, rents jumped 12.5% inland in the 12 months ending August 2021, against a coastal drop of 1.9%.
And if moves are a measure of popularity, well, then east ho!
Consider another measure of population flow, a to study by Bloomberg News postal declarations of “change of address”: The Inland Empire recorded 4% more arrivals than departures between March 2020 and February 2021. Arrivals from Sacramento were 3% more and those from Fresno 1% more.
Half empty glass
Will these recent inland rent increases force more cost-conscious people to think about leaving the state?
Already, the expensive coastal market has performed poorly in the analysis of the change of address in the era of the pandemic. In San Francisco-Alameda, 8% of people moved more than indoors; San José-Santa Clara, 5% more departures; Los Angeles-OC, 4% more outings. San Diego, the outlier, had 1% more entries than exits.
Please note how these domestic rental markets rank among the top 50 most populous counties. They’re by no means cheap America-wide, and their two-year rent increases exceed most of their peers in other states …
Saint-Bernardin: Average rent of $ 1,695 over the past 12 months – the 20th highest of 50. It’s up 15.1% year-over-year, the No.1 gain for the major counties. This follows a 2.8% gain in the year ended August 2020 – No.8 nationwide.
Fresno: $ 1,304 – n 35; up 13.3% over 12 months, No. 2 out of 50; after a gain of 5% the previous year – No. 2 nationally.
Riverside: $ 1,810 – # 13; up 12.3% over 12 months, No. 3 out of 50; after a 3.3% gain the previous year – No. 4 nationwide.
Sacramento: $ 1,630 – # 21; up 9.5% year-over-year, No. 9 gain of 50; after a gain of 2.8% the previous year – No. 9 nationally.
Still, these are good deals against the coastal counties …
San Diego: Average rent $ 2,014 over the past 12 months – No. 8 among major counties in the United States. That’s up 5.3% year-over-year, the No. 15 gain of 50. Rents rose 0.7% over the previous 12 months – No. 27 nationally.
Orange: $ 2,197 – third highest; up 4.3% over 12 months, No. 21 out of 50; after 1.3% gain the previous year – No. 19 nationally.
Against Coast: $ 2,046 – # 7; down 0.3% year-over-year, n ° 36 out of 50; after a decline of 0.3% the previous year – No. 40 nationwide.
Angels: $ 1,757 – # 16; down 2.9% year-over-year, No. 41 out of 50; after a 0.6% drop in the previous year – No. 44 nationwide.
Alameda: $ 2,053 – # 6; down 6.6% year-over-year, sixth lowest of 50; after falling 0.9% the previous year – the fifth lowest nationally.
Saint Clare: $ 2,254 – second prize; down 11.1% year-over-year, second lowest of 50; after a decline of 0.9% the previous year – the third lowest nationally.
What awaits us
Remember, it’s been two crazy years for the entire economy – from the record unemployment rate at the end of 2019, to instant uncertainty in the spring of 2020, to today’s muddled rebound.
Large rent increases have pruned the California interior price advantage. The faithful spreadsheet tells us that two years ago, typical interior tenants enjoyed a 34% savings compared to coastal units. Today that discount is 22%.
These inland counties weren’t ready for the influx of tenants – they are known for their cheaper purchase options. Homeownership is 65% in the four interior counties against 55% on the coast.
These geographic rent differentials could narrow even further as developers of inland apartments do not seem to react quickly. In the first seven months of 2021, the four interior counties saw multi-family building permits drop 13% compared to an 8% gain in the six coastal counties.
Will these shrinking bargains drive some tenants back to California’s coastal population centers – or force them out of state?
We must not overlook an important factor in the future of rents everywhere – the future of these work from home policies. Hiring models could change if and when companies decide the downtown office is again the place to be and if remote workers will still receive “big city” wages.
Post Scriptum
Home buyers are seeing similar trends. Inland counties had an average median selling price of $ 389,000 for a single-family home in July – up 22% year-on-year – compared with $ 909,000 for coastal counties – up 19%, according to data from the California Association of Realtors.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be contacted at [email protected]
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