• There are nearly 100,000 single-family rentals in the San Jose metro.
  • Single-family homes in San Jose are purchased at an average cap rate of 3.3 percent.
  • San Jose's median household income is just below $100,000.

Low homeownership rates within the San Jose metro suggest the demand for single-family rental homes will expand this year.

According to HomeUnion, rents at single-family homes are expected to rise by 7.3 percent year-over-year, with the average rent climbing to $3,459.

This more than seven percent rise will make the metro the top market nationally for single-family rent growth in 2016.

Low homeownership in San Jose

Within the San Jose metro, basically Santa Clara County, HomeUnion is currently tracking 334,000 single-family homes. According to Steve Hovland, manager of research services at the firm, 45.4 percent of those homes are owner-occupied– the lowest homeownership rate among the nation’s largest markets.

Of the roughly 180,000 single-family homes that are not owner-occupied, about half are rentals.

The majority of these rentals are owned by “retail buyers” rather than institutional investors that purchase 10 or more homes within the metro each year. Currently, HomeUnion is only tracking one institutional investor that purchased more than 10 homes last year.

The reason for the lack of institutional investors is low cap rates. HomeUnion estimates the average single-family rental home in the metro is purchased at a 3.3 percent cap. The firm cites $610,000 as the median sales price in the metro.

Demand for rentals in San Jose

While roughly 5,400 multifamily units are slated to be delivered in the metro this year, Hovland believes demand for single-family rentals will hold strong, as the asking rents at newly-built multifamily developments will closely mirror prices in the single-family sector.

“Demand in apartment (sector) will begin soften before single-family rentals,” he said, adding there are a number of families that can’t afford an $800,000 home that will opt to rent a single-family home rather than rent an apartment.

Also benefitting the single-family rental sector, San Jose’s median household income is just under $100,000 and has grown by 17 percent spanning the last four years.

The San Francisco-San Mateo-Marin metro also made HomeUnion’s list of top single-family rental markets, placing fifth. In that metro rents are expected to rise by 5.4 percent year-over-year, reaching an average of $4,451.

Email Erik Pisor

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