US residential rents up 3.3% overall but some areas seeing higher growth
Median residential rents in the United States continued rising nationwide in January, with rental appreciation in some small and even struggling housing markets catching up to the country's hottest areas.
According to Zillow's latest real estate market report its rental index increased by 8.5% year on year in Kansas City, more than twice the national pace and faster than markets where rapidly growing rents are an old story, including Seattle, Boston and Los Angeles.
Two years ago, when West Coast rents were already soaring, rental growth in St. Louis was flat and even falling. But between January 2014 and January 2015, rents there rose 4.2%. The fastest growing rent in the country in January 2015 was in San Francisco, where median rents were up 15% year on year for the fourth month in a row.
Overall rents were up 3.3% year on year in January, near the historical norm. The fastest growing rental markets in January included Denver, Kansas City, Nashville, Portland in Oregon and Charlotte in North Carolina.
Nationally, the Zillow rent index rose 0.4% from December, to a median of $1,350. For years, demand for rentals has driven up rents, and income has not kept pace, the firm pointed out.
It also said that currently, Americans should expect to spend roughly 30% of their incomes on rent as opposed to historic norms of around 25%. And the problem is far from over, according to more than 100 housing experts surveyed in the latest Zillow home price expectations survey with more than half saying they expected rental affordability to continue to be a problem for at least two more years.
‘Rental appreciation has been a freight train these past few years, chugging along without any appreciable slowdown. Since 2000, rents have grown roughly twice as fast as wages, and you don't have to be an economist to understand why that is hugely problematic,’ said Zillow chief economist Stan Humphries.
‘More than one third of Americans are renters, and today's renters are tomorrow's buyers. For many current renters, buying a home could mean both a lower and more stable monthly payment, but rising and increasingly unaffordable rents make it difficult to save for a down payment on a home,’ he explained.
‘The rental market used to be and should remain a stepping stone to home ownership. But given how widespread rental affordability problems have become, the rental market could be acting more like a barrier to buying,’ he pointed out.
‘More supply will help ease the crunch, both from new construction and as current renters transition into homeownership, creating more vacancies in existing developments. But neither will happen overnight,’ he added.
Nationally, home value growth continued to level off in January and the Zillow home value index increased by 0.2% from December and 5.4% year on year to a median value of $178,500.
Home values are expected to grow another 1.9% through to January 2016, according to the firm and by the end of the year Zillow expects growth in rents to outpace growth in home values.
The expectations survey also suggests that unaffordable rents are making it hard for people to save for down payments, and they aren't likely to ease up for at least two years. Some 52% of respondents said the market will correct the nation's soaring rents over time, and no government intervention is required and 35% said rising rents are not a problem.
‘Solving the rental affordability crisis in this country will require a lot of innovative thinking and hard work, and that has to start at the local level, not the federal level. Housing markets in general and rental dynamics in particular are uniquely local and demand local, market driven policies,’ said Humphries.
‘Broader federal efforts aimed at increasing real wages and job opportunities will go a long way toward helping renters, but real, lasting solutions to rising rents need to be found locally,’ he added.
The panellists predicted home values will rise 4.4% in 2015, to a median value of $187,040. The most optimistic forecasted a 5.5% increase, while the least optimistic projected a 3.1% rise. On average, panellists said they expect median home values to exceed their pre-recession peak of $196,400 by May 2017.
‘During the past year, expectations for annual home value appreciation over the long run have remained flat, despite lower mortgage rates,’ said Terry Loebs, founder of Pulsenomics.
‘Regarding the near term outlook, there is a clear consensus among the experts that the positive momentum in home prices will continue to slow this year. At 4.4% overall expectations for nationwide home value growth in 2015 are one third lower than the actual 6.6% appreciation rate recorded last year,’ he added.