With home ownership increasingly surpassing the reach of many Californians and residential real estate prices going up across the board, more people in South County are renting their homes in recent years.
As of earlier this year, the average two-bedroom home rental in Morgan Hill costs $3,509 per month, according to data provided by local Realtor Danielle Davenport. In Gilroy, the current average monthly two-bedroom rental is about $3,500.
In 2019, the average two-bedroom rental in Santa Clara County was about $2,940, Davenport added. In 2024, the average three-bedroom rental in Santa Clara County is about $4,659—about 91% higher than the national average.
The portion of the local population that rents instead of owns their home is on the rise as well. According to the website Point2 Homes, which tracks and compiles the latest U.S. Census data, the number of renter occupied homes (4,126) in 2022 increased by 2.2% from the previous year. In Gilroy, that increase was 2.6% from 2021 to 2022. About 6,180 homes in Gilroy are renter occupied, as of 2022.
In California, 50% of homes are renter occupied, and 44% of Californians are renters.
Davenport, who is Senior VP of Commercial, Land and Residential for KW Commercial South Bay, said these demographic changes are due to a number of factors—not least of which is the overall increase in housing costs in recent years. Other factors are the “constriction of supply of homes for sale/rent from global buyers, institutional and small investors, and of course population growth,” Davenport said.
“Also, the demand for rentals has increased since the pandemic due to the interest rate and affordability issues,” Davenport added.
Across the U.S., the number of renter households increased by 1.9% in the second quarter of 2024, Davenport wrote in one of her recent regular real estate newsletters, citing a report from Redfin.
“This growth rate outpaced the number of homeowner households, which increased by only 0.6% to 86.3 million,” reads Davenport’s newsletter. “The surge in renter households can be attributed to rising housing costs. Average rents are currently 23% above pre-pandemic levels, while mortgage rates have soared by 90% over the same period.”
Yet another factor in the rise of renting is “current inventory/ownership cost to maintain and financial cliffs of existing multi -units,” Davenport added. “And lastly, developers and builders are not interested in this product as the margins are not as high as (single-family homes) or (tract home) products.”
A relatively new market factor that has influenced rising property prices and a shortage of supply is the influx in recent years of foreign buyers in the U.S.—and particularly in the Bay Area, Davenport explained. Many of these buyers are wealthy investors who can pay cash prices for homes that local residents cannot compete with. These investors often have no plans to live here, holding the properties for long-term value growth.
“Foreign investors are increasingly acquiring residential properties in the U.S., accounting for approximately 44% of the market each year,” Davenport wrote in another previous real estate newsletter. “These investors seek stable, high-return investments, which residential real estate in the U.S. typically provides.”
That newsletter continued, “The issue is not just about building more homes but ensuring those homes are accessible to first-time buyers rather than being snapped up by investors.”
Davenport added that in her experience, almost every recent client that has purchased farmland in California has been a foreign entity—primarily from China and Canada. “Those properties are not going to other farmers,” Davenport said.
All these factors, and more, have led to median home prices of about $1.3 million in Morgan Hill as of July, and average sale prices of between $1.1 million and $1.2 million in Gilroy.
