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Residential rents in the United States are continuing to rise, up 3.7% year on year to $1,362 a month and keeping pace with house price growth of 3.9% over the same period. The latest data from real estate firm Zillow shows that in 17 of the nation’s 35 largest metro areas, annual rental growth exceeded annual house price growth in March. This is in line with expectations as the firm predicted at the end of 2014 that annual rent growth would outpace house price growth by the end of 2015. It now says this will happen well before the end of the year. But while overall home values in the nation as a whole may still be growing more quickly than rents, in many large metro areas, rental growth has surged ahead over the past year. Of the 17 metro areas where rents are growing more quickly than home values, the biggest differences are in San Francisco with rents up 14.8% year on year and home values up 9.6%. While in Kansas City rents are up 8.6% and price up 4%, and Pittsburgh it is 6.3% and 4.3% respectively. March represents the first month in two years in which annual home value growth was less than 4%. For 24 months, home owners have watched their homes appreciate at a pace well above historic norms at around 3% annually. According to Zillow rising rents themselves are a double edged sword for the purchase market. As current tenants see more and more of their income going to landlords that keep raising the rent, many are likely to opt for the relative stability of homeownership. And home ownership, in addition to offering stable payments over many years, is also an incredible bargain right now. Current US renters making the median national income can expect to pay about 30% of their income to afford the median US rental property, up from about 25% historically. Buyers, on the other hand, thanks to very low mortgage interest rates and home values that, for most local markets, remain below their pre-recession peaks and should expect to pay only 15% of their income on a mortgage, down from about 22% historically. The Zillow analysis also points out that homes to buy remain scarce, and those homes being built are often focused at the high end, and not at current renters that are likely looking to buy more entry level homes. Continue reading →

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