California Rental Market Update — May 2025: Falling Prices, Rising Opportunities

Key State-Level Numbers

• Typical monthly rent: $2,398 (↔ MoM + $3; YoY – 14.4 % / – $403)
• Active listings: ≈ 98 000 rental homes currently on the market (highest since 2020)
• Vacancy rate: 5.4 %, the highest statewide in six years
• Annual income needed: $96 000 to afford median rent under the 30 %-of-income rule (vs. $74 000 national)
• New supply: 42 000 multifamily units delivered over the past 12 months
• Observed renter demand: Running 2 % below 2019 levels, i.e. essentially pre-pandemic normal
• Zillow rent forecast: + 3.1 % for single-family and + 2.1 % for multifamily through end-2025
• Affordability gap: Because the median California rent sits 30 % above the U.S. norm ($1,850), a household now needs about $96 k in annual income to keep the standard “rent = 30 % of income” rule, versus $74 k nationally.

How the Big Metros Compare

What the table shows

• 2024’s correction has deepened along the coast. San Francisco and Los Angeles are logging the steepest discounts from pandemic-era peaks, thanks to a record pipeline of Class-A apartment deliveries and persistent out-migration.
• Inland metros (Sacramento, Riverside, Fresno – not shown) are closer to price stability, having never spiked as high in 2022–23.

Demand & Affordability Pressures

Zillow’s latest rent report finds that a renter must now earn six-figure salaries in 11 California MSAs just to afford the median lease without becoming rent-burdened. In Los Angeles, a typical tenant spends 36 % of gross income on rent; in San Francisco it’s 41 %.

Yet observed demand (ZORDI) is plateauing rather than collapsing. Page-view and inquiry volumes across California are only 2 % below their 2019 baseline — tenants still need housing; they are simply shopping harder and pushing back on asking prices.

Supply Side

Developers delivered roughly 42 k new multifamily units statewide in the past 12 months — the biggest wave since the 1980s. Combined with thousands of “accidental” single-family rentals left unsold in a high-rate environment, the vacancy rate on Zillow’s platform is hovering near 5.4 %, its highest in six years. This new slack explains why statewide rents are falling even as employment remains strong.

Looking ahead, Zillow Research expects:

• Single-family rents: +3.1 % in calendar-year 2025.
• Multifamily rents: +2.1 %, a pace well below the 2021-22 boom.

Construction starts, however, are already down 25 % from their 2022 peak, so today’s oversupply will gradually burn off through 2026.

What It Means for Renters

1. Negotiate, don’t hesitate. With inventory up, landlords are more open to free parking, month-free concessions or modest rent reductions on renewals.
2. Consider 12- to 24-month leases. If you secure a favorable rate now, you lock in savings before the next construction lull tightens the market.
3. Broaden your search radius. Inland hubs like Sacramento and the Inland Empire sit 10-15 % below coastal prices yet offer similar commute-by-hybrid flexibility.

What It Means for Landlords

1. Price realistically. Units listed above the Zillow Rent Index for their ZIP code linger 25 % longer on the market. Use data, not last year’s comps.
2. Invest in make-readies. Minor upgrades (smart locks, fresh paint, in-unit laundry) can justify premium pricing even in a cooling market.
3. Understand rent caps. California’s statewide AB 1482 allows annual increases up to 5 % + CPI (currently ≈ 8 %), but local ordinances may be stricter.

Outlook Through Early 2026

• Base-case scenario: Statewide rents bottom in Q3 2025, then creep up 1–3 % annually as new-build completions fall off and household formation rebounds.
• Upside risk: A sharp drop in mortgage rates could lure renters into home-buying, further softening demand and forcing landlords to keep rents flat.
• Downside risk: If construction financing remains tight, today’s pipeline could be the last big wave for a while, tightening vacancies faster than expected.

In short, 2025 is shaping up as a renter-friendly window: ample supply, softer prices, and room to negotiate. Landlords can still succeed, but only by staying data-driven and competitive. Keep a close eye on inventory trends; the balance of power may shift again by late 2026.