Rents Growing Faster Than Home Prices In U.S.

Residential rents in the United States grew 4% year on year in April, overtaking home values growth which was at an annual rate of 3%, the latest data …

Residential rents in the United States grew 4% year on year in April, overtaking home values growth which was at an annual rate of 3%, the latest data shows.

It means that rents grew at their fastest pace in two years in April, and surpassed home value growth in 20 of the 35 largest US housing markets, according to the data from real estate market report firm Zillow.

Rents reached $1,364 and home values reached an average of $178,400 and growth in home values is expected to slow further in the second half of the year as the for sale housing market stabilizes.

The switch comes after years of rapid home value increases and has been boosted by the improving economy. The Zillow report points out that US home values peaked in 2007, and then crashed during the recession between 2008 and 2010. Since then, they have risen rapidly, returning to their peak levels in many markets.

Home values have both risen and fallen over the past decade, but rents have been steadily rising. Indeed, rental growth has been outpacing home value growth for several months in some of the nation’s hottest markets.

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In San Francisco, rents started rising faster than home values in July 2014, and have been growing faster ever since on an annual basis. In Boston, annual rental growth has outpaced home value appreciation since August 2014.

The report points out that low mortgage rates have helped make buying a home much more affordable than renting. On average, US home buyers can expect to spend about 15.3% of their income each month on a typical house payment. Renters can expect to spend about 30% on a monthly rent payment.

‘There are tremendous incentives to get into home ownership these days: mortgage access is improving, interest rates are low, and home values remain below prior peaks,’ said Zillow chief economist Stan Humphries.

‘But it will be increasingly difficult for many renters to realize these benefits as this country’s growing rental affordability crisis continues to worsen. More income going to rent means less going to savings for a down payment and other costs, keeping renters renting longer and feeding into the high demand that is contributing to rising rents in the first place,’ he explained.

‘This cycle will be difficult to break, and is a symptom of the imbalances that still exist in the housing market as we struggle to get back to normal. New construction and rising wages will help, but neither is coming very quickly,’ he added.

Over the next year, home value growth is expected to slow even further, to 2% annually, according to the Zillow home value forecast. In 2014, home values rose 4.9%.

This article was republished with permission from Property Wire.


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