On The Move

I returned from my annual sojourn to the beloved Virginia countrysideto discover Palo Alto’s rental market had caught fi re. Naturally, Istarted to wonder why.

Let’s take a step back… In June, the Palo Alto rental market wasnearly as competitive as hitting the winning bid on a move-in-readyhome. If you found a rental you liked, you had to consider signing amulti-year lease and maybe offering a little extra per month in rentjust to make sure your application received serious consideration.

Fast forward two short months and Palo Alto is awash in rentals.There are enough properties coming onto the market that somelandlords are actually lowering their asking rents.

So, what happened? I have a few theories.

1. Are we finally seeing the effects of the tech layoffs?

If you’ve worked for Meta, Google or Apple for 10+ years, there’s agood chance you own a home in the area and perhaps a secondhome somewhere a little more chill, courtesy of all those years ofequity compensation.
Could some of those recently laid-off employees be decamping tothat second home while they fi gure out what’s next, rather thanselling their primary residence? The math could make sense: avoidcapital gains, potentially tap home equity through a HELOC ifneeded, and keep the Palo Alto home for a possible return if the rightjob comes along.

2. Are some owners looking to reposition their primary residence asan investment property?

Could we be seeing homeowners make a longer-term decision to rent out what was once their primary residence rather than sell it? There are tax and investment considerations here, including the potential fora future 1031 exchange if the property ultimately qualifies as investment property, but that’s a whole topic in itself.

3. Or are renters simply leaving?
Some of the new rental inventory may be homes that were alreadyrentals, with tenants now leaving the area because there isn’t a job to hold them here.

And a thought: some of these renters may also have been future buyers. If they’re leaving the Bay Area altogether, that’s not just a rental-market story it could shrink the pool of potential buyers, too.

All speculation, of course. But I do love trying to solve a good market mystery. If you have a theory, or you’re seeing something I’m not, I’d love to hear it.

– Lisa
On The Move is a curated mix of what’s inspiring me lately, what’sshifting in the market, and what might just shift your perspective orinspire you too.