Rents across the United States increased by 0.7% year on year in March to $1,408 per month, the slowest pace since November 2012, the latest index report shows.
The data from real estate firm Zillow also shows that rents in the Bay Area have slowed more than any other large metropolitan area over the past year. In San Francisco, rents are down 0.1% after rising almost 10% annually a year ago while rents in San Jose fell 1.1% compared to a rise of almost 9% a year ago.
Even in West Coast markets, where rental growth is notoriously strong, rent appreciation is starting to slow. In Seattle rents were up 6.7% but the pace of appreciation has been slowing since August 2016. Rents in Sacramento were up 4.7% but were rising at almost 7% annually toward the end of last year.
The Zillow report suggests that affordability is a significant issue for renters across the country who have experienced rising rents for years. In many major metros, the share of income needed to pay rent well surpasses the general rule of not spending more than 30% of income on housing.
Indeed, in Los Angeles, the median rent payment takes up almost half of the median income, which forces renters to shack up with roommates in order to make housing more affordable.
‘The slowdown in rental appreciating is mainly due to new construction finally meeting demand, and even outpacing demand in some areas. But rents are the highest they’ve ever been, weighing heavily on renters’ budgets and making it extremely difficult for those renters hoping to become home owners to save enough money for a down payment,’ said Zillow’s chief economist Svenja Gudell.
‘In most markets, a monthly mortgage payment is more affordable than a monthly rent payment, but the most difficult aspect of home buying for many aspiring home owners is coming up with enough money for the down payment,’ she added.
Meanwhile, Zillow research also shows that median home value across the country increased by 6.8% compared to a year ago to an average of $196,500 with Seattle, Tampa and Dallas recording the highest year on year home value appreciation among the 35 largest US metros.
In Seattle, home values rose almost 12% to a median value of $426,300. Home values in Tampa and Dallas were up about 11% since this time last year.
The report explains that low inventory continues to be a problem for home buyers across the country as there are 5% fewer homes for sale compared to a year ago and this paving the way for an extremely competitive spring home buying season.
Minneapolis, Columbus, Ohio and Seattle reported the greatest drop in inventory among the 35 largest metros. In Minneapolis there are 24% fewer homes on the market compared to a year ago, and 19.5% fewer in Columbus. In Seattle, where home values are growing the fastest, buyers have 17% fewer homes to choose from than a year ago.