What is going on with rental prices in Orange County?

Rental prices in Orange County have been on the rise for years but we have seen some of the most dramatic increases ever over the last 12 months. In this episode I cover how much rental prices are rising in Orange County, the reasoning behind it, and what to expect if you are thinking of looking for a rental or have a lease renewal coming up. If you are a current or future renter, this episode is for you!

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Josh Alexander 0:00

Are you currently renting or thinking about renting a property in Orange County? Will I guarantee you're going to want to watch today's episode? Hi, I'm Josh Alexander and your host of Orange County Housing market news, your one stop shop for all things Orange County real estate. So on today's episode, we're going to be going over some of the recent data that was just released. In regards to the rental market in Orange County, some of these numbers are going to blow your mind. And if you're renting or thinking about renting, you're going to need to mentally and financially prepare yourself for what's about to happen. So let's go ahead and get into it.

Josh Alexander 0:39

So it probably comes at no surprise to most of you that rent has been significantly increasing Orange County over the last couple of years, but by how much. That's the data we're going to look at today and specifically just over the last year alone. And to do that, we're going to break it into two different sections. So first, we're gonna look at how much it's increased in the vacant homes, which means that once a tenant moves out how much on average are landlords increasing the rent to find a new tenant, and then we're gonna look at current renters and what you can expect your landlord to do. When that renewal lowness comes in the mail, so you know what to expect. And you're not going to be shocked by these numbers you're going to see on your paper. So let's first look at how much rent has gone up for those vacant units where again, the tenant left and their landlord is finding a new property. And let's split that into two different groups.

First, let's look at apartments. So apartments on average over the last year have increased their rent by 18.5%. When a tenant moves out, and on the single family home side, that's gone up by 15.4% as well. So these are significant changes, the average rent in Orange County over the last year for apartments has gone up by more than $400 in a single year. And that $400 per month is a significantly large dollar amount when you're looking at the average family trying to make payments not only on their housing, but also with food, car school, all that stuff combined, that extra $400 A month is a significant difference, especially in just a 12 month period.

Now, why has this number going up so significantly? Well, we'll look at that in a second. But first, let's go ahead and look at the other side of things where you're currently renting a property. And the renewal lease comes up what you can expect that renewal price to be so right now, due to the law passing at 1482. rental prices cannot go up more than 10% this year. And that 10% is still a huge number, especially with the prices of rent in Orange County, that can be a couple $100 every single month more that you weren't paying just a year ago in order to rent a property in Orange County. And the other thing you have to remember is that 10% Max that that law states only applies to certain properties. So for instance, if you're renting in an apartment complex that is less than 15 years old, if you're renting a single family home in Orange County, or if you're renting a duplex where the owner lives in one unit and you're living in the other, there is no rent cap, which means the landlord could raise rents every single year as much as they want.

Obviously, within reason it has to be market value, otherwise, the renter is just going to find someplace else to go. But they can raise it as much as they want every single year. And to show you how real this is. There is a recent story in the OC register that just came out the interview in Irvine a renter, and they just got a notice that their rent was going to increase by 24%. In a single year. Can you even imagine getting that type of letter in your inbox from a landlord? This

Josh Alexander 3:28

is a huge problem in Orange County. And it's only going to get worse. So why is that? Well, it's all going to come down to supply and demand. Right now in Orange County, we only have a vacancy rate of about 2.5%, which is about half of what it usually is, which just means there's just not enough rental properties to go around. In fact, rent Cafe just released a study going over the top 100 largest rental markets in the US. And guess where Orange County landed at number 11.

So right now in Orange County, for every unit that's available, there's 20 tenants trying to get into that property. So if you've been trying to search for a rental property recently, you already know this, it's been crazy for almost two years at this point, when a property pops up, you're going to have 1015 20 applications on it. Applicants willing to pay a year in advance, willing to go above what the landlord is asking monthly just to get into a property right now, which is obviously not a healthy rental market. And that's one of the reasons we're seeing these prices driven up so quickly is because there's just too much demand and not enough supply right now. So why are we seeing such historically low vacancy rates in Orange County for rental properties right now?

Well, it has to do with a lot of things, but let's go over some of the major ones. So number one is the millennial generation. The largest generation in the US right now are in peak home buying years, and unfortunately a lot of them have been getting priced out of the market because the market has been going crazy over the last couple years with appreciation as well as interest rates this year going up and making even less affordable for millennials to buy homes. So what are they forced to do? They're forced to rent properties. And when you have a large patch of millennials trying to rent properties, that's going to decrease availability of homes because you have a lot of competition on the market. The second reason is unemployment is back to historic lows. So back to where we were before the pandemic began.

Now, Orange County still has some jobs to make up. But the country as a whole right now is back to where it was in terms of employment before the pandemic began. The third reason we're seeing this historically low vacancy rate is that we're still seeing the impacts of that eviction moratorium that has been happening since the pandemic began, people were not able to be evicted. So they are staying in their apartments. So that situation is slowly starting to resolve itself, it has taken time. And even though we are seeing those eviction numbers go back up, we're just really not gonna see the amount of properties that we need to hit the market hit the market from that anytime soon to make any kind of dent in this crazy rental market right now. And the fourth reason, which I mentioned before with the millennials is that not only can Millennials not afford homes right now, but the general population as well is having a harder time purchasing a home because prices have gone up so significantly, which means more potential buyers have had to step out of the buying market and go to the rental market instead.

So unfortunately, it doesn't look like home prices are going to be coming down anytime soon. For these buyers, interest rates have dropped, making homes more affordable than they were just a month or two ago. However, home prices are still much higher than they were two years ago, making it very hard for a lot of buyers to save the downpayment, especially when rental prices are so high in Orange County to begin with, save that downpayment enough to be able to get into a property and own a home instead of rent. Now, if you are part of that group of renters that wanted to buy a home, but just couldn't purchase a home if you're able to afford the monthly payments of a mortgage, but you're just not able to save up that downpayment because you just can't save enough per month because it's all going to your rental right now.

There are a lot of programs out there that will allow you to put 3% down and there's also a lot of programs out there right now for first time homebuyers that also help out with that 3% downpayment and contribute to most of it or all of it, in some cases, to be able to get you over that hump, get that downpayment you need and get you into a house so you can start building equity and stop paying someone else's mortgage. If you are one of those renters right now that could potentially afford a mortgage but just can't get that downpayment. And you want some more information on the different type of loans available and the downpayment assistant programs available for you to help you get over that hump into that house, please feel free to reach out to me anytime I'd be glad to connect you to the right lender that has these programs available.

So you can talk with them to see if you qualify and to see if homeownership can be something that you can get into sooner rather than later. And for those of you who can't afford a mortgage right now and can't afford that downpayment as well, unfortunately, I don't really have much good news for you. Because right now, most housing economists are predicting that rent is going to continue to arise at a faster than normal pace over the next couple of years. Because this inventory issue we have with rentals is just not going to resolve itself anytime soon. So current and future renters. This episode is not meant to scare you. What I'm trying to do here is give you the facts and the data of what's going on in the rental market.

Josh Alexander 8:17

So you're not caught off guard with what's happening. So if you're trying to rent a property, you'll know that it's going to be very competitive. And it could take a while for you to actually get into a home. And if you're renting right now and waiting for that renewal notice in the mail, you want to expect your rent to be going up so you can mentally and financially plan for that. So again, you're not caught off guard and having to try to figure out what to do on a very short timeframe.

Now current renters The last thing I want to leave you with today, which is kind of a ray of hope is just because landlords can increase your rent by 10% or more every year doesn't mean that they're going to so if you're taking care of the property, you're paying on time, you're a good tenant. Oftentimes, landlords are not going to do the maximum increase, they're going to increase it gradually every single year. So hopefully, you're not going to get that 10% plus increase however, I do want you to be prepared for it so you know what to expect. So I hope you found this information useful. If you did, please hit that like subscribe and share button below. I post a new episode every single week about the Orange County Housing market. So if you want to stay up to date with what's going on, make sure you hit that LIKE SUBSCRIBE button. And if you're watching this on YouTube, hit that bell button below. That way you get notified every week when I release a new episode. So until next week, stay healthy, stay happy, and I'll see you on the next show.