For the first time in two years rents grew 4 percent year-over-year, beating out home values in April, which appreciated at an annual rate of three percent, according to Zillow Real Estate Market Reports. This intensified a “rental crisis” and signaled that home values increasing at a normal rate.
April home values rose from March to a national Zillow Home Value Index of $178,400, a 3 percent increase over last April, Zillow reports. Meanwhile, the Zillow Rent Index (ZRI) rose four percent year-over-year to $1,364.
After years of home-value increases due to the improving economy rents and home values switched positions, according to the report. Home values peaked in 2007, and then crashed during the Great Recession between 2008 and 2010. They have since gradually increased and returned to their peak levels in many markets. Although home values have been up and down for the past decade, rents have been steadily rising and are now higher than ever before.
“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,” said Dr. Stan Humphries, Zillow chief economist. “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."
For several months, rental growth has exceeded home value growth in some of the nation’s largest markets, the report said. San Francisco rents started rising more quickly than home values in July 2014, and are growing more every year, and Boston rent growth has topped home values since August 2014. Rents grew faster than home values in 20 of the 35 largest U.S. housing markets. Home value growth is expected to slow further in the second half of the year as the for-sale housing market stabilizes.
Home buying has become more affordable than renting due to low mortgage rates, Zillow says. On average, U.S. homebuyers can expect to spend about 15.3 percent of their income each month on a typical house payment, while renters can expect to spend about 30 percent on a monthly rent 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," Humphries said. "But it will be increasingly difficult for many renters to realize these benefits as this country's growing rental affordability crisis continues to worsen.”
View the full report: Zillow.com