Bay Area Housing Market 2005
2005 has demonstrated a major shift in the market place. Bay Area renters are beginning to see prices rise and their bargaining power swiftly decline. An improving job market has boosted a demand for apartments in the Bay Area since the dot-com blowout. In the past year, Bay Area employers have gained 26,600 jobs according to the Employment Development Department’s monthly survey. While most of these jobs are in construction, finance and health care, Bay Area jobs have increased a total of .8 percent this past year. Corporate profits have rebounded and the surge in the local economy is poised to persist. The employment gains in the region are strong enough—and widespread enough—that analysts believe the job market will continue to power ahead through 2006.
The strong economic growth within the Bay Area has resulted with a high demand of housing needs in already densely populated areas such as San Francisco and the South Bay. This growing demand for housing in the Bay Area has increased an influx of condominium conversions and new development construction. Bay Area apartment product currently under construction totals 7,306 units, with nearly 5,600 of these apartments in projects that should finish construction through 2006’s 1st quarter. This scheduled new supply through the 1st quarter well exceeds the 3,272 apartments that were completed in the past year. The investment into new construction is based on the faith that the occupancy rates will remain firm and constant, as past trend reports have demonstrated. Occupancy in the Bay Area is expected to reach 96.4 percent in March 2006. San Francisco’s occupancy performance, anticipated at 97.1 percent in the 1st quarter 2006, should lead the region, exceeding Oakland’s forecast occupancy of 96 percent and San Jose’s anticipated occupancy of 95.9 percent.
40 percent of the Bay Area’s rental market consists of one-bedroom units with one and two bedroom units over 97 percent occupancy. These firm occupancy rates have shifted the rental market to increasing rental rates. With the Bay Area economy recovering, companies are beginning to hire in large masses once again, resulting in immediate housing needs. Mortgage interest rates have slowly began to steady themselves and with such high “for sale” price points, most people living in the Bay Area are unable to afford to purchase a house. Rental apartments are the only choice for many people. Developers and property management are aware that they are able to move forward at the same rapid speed as the economy and increase rental fees with longer mandatory leases because the supply of apartments is growing slower than the number of people demanding housing in the Bay Area.