Rents are already soft and dropping on the apartment side, depending on where you look. Rental houses are just another substitute for rental apartments.

I’m already seeing a few apartment markets where the rents have retreated to 2004 levels after having peaked in 2005-2006. The rents are dropping because the vacancy rates have been increasing. The rental market for houses has been lagging that of the apartments, but that won’t last forever.

Downtown still has a lot of vacant condos and more are in the pipeline. Some are already turning to rentals and they’re sucking tenants from the west side of the mid-cities areas, which in turn are sucking tenants from the east side. Etc, etc.

It’s all connected. Now I don’t think that rents are subject to 30% or 40% drops but I also don’t think that 20% drops are completely out of the question. At this point I’m thinking rental decreases in the single family side of at least 10% are more likely than not.

Of course, that’s going to pull down the parity level for home prices, too, making it that much farther they’ll have to drop to compare to the rental rates.

OTOH, I could be completely wrong about all this and we might be looking at the “new paradigm”, where the old rules don’t apply. If so, we could be looking at a “soft landing” and a resulting “new normal” for the rental market. After all, San Diego is special and “everyone wants to live here”.