Us rents outpace home prices

Photo: JeffGunn

US rents rose faster than house prices in April 2015 for the first time in years, as demand from tenants remains high.

Home values in April ticked slightly upward from March to $178,400, according to Zillow, 3 per cent higher year-on-year. Despite the more moderate growth of house prices, though, tenant remain trapped in the rental sector, which helped to push rents up 4 per cent year-on-year to an average of $1,364.

The switch comes after years of rapid home-value increases sped along by the improving economy. US home values peaked in 2007, and then crashed during the Great Recession between 2008 and 2010. Since then, they have risen rapidly, returning to their peak levels in many markets.

Rents, though, have been steadily rising and are now higher than ever before.

Indeed, in some markets, rents have already been outpacing house prices. In San Francisco, for example, rents started to overtake home values in July 2014, while Boston followed the trend one month later.

This high demand for rented accommodation remains despite the fact that buying a home is now more affordable: low mortgage rates have helped make monthly costs for purchasing a home fall to just 15.3 per cent of a typical monthly income, compared to 30 per cent 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," says 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. 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."

"New construction and rising wages will help, but neither is coming very quickly," he adds.