A “rental crisis” is deepening, with soaring U.S. rents outpacing home values in April for the first time in years, according to Zillow’s latest update on the real estate market.
Home values in April rose slightly from March, to a national Zillow Home Value Index of $178,400, a 3 percent increase over last April. The Zillow Rent Index was up 4 percent year-over-year, to $1,364.
Home values have both risen and fallen over the past decade, peaking before the housing market crash and Great Recession between 2008 and 2010 — but rents have been steadily rising. Rents are now higher than ever before, including in markets that have returned to their peak home values.
Rental growth has been outpacing home value growth for several months in some of the nation’s hottest markets, Zillow says. In San Francisco, for example, 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.
Low mortgage rates have helped make buying a home much more affordable than renting. On average, U.S. homebuyers can expect to spend about 15.3 percent of their income each month on a typical house payment. Renters can expect to spend about 30 percent on a monthly rent payment.
Renters Unable to Save Toward A Down Payment
“There are tremendous incentives to get into homeownership these days: mortgage access is improving, interest rates are low, and home values remain below prior peaks,” said Zillow Chief Economist Dr. 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.”
With more income being spent on rent, less is being saved for a down payment and other homeownership costs. This is keeping renters renting longer, which feeds the high demand that is contributing to rising rents.
Humphries: “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.”
Over the next year, home value growth is expected to slow even further, to 2 percent annually, according to the Zillow Home Value Forecast. In 2014, home values rose 4.9 percent.