Dive Brief:
- New apartment buildings, coming available after an increase in multifamily starts in 2009, have added to the inventory of rental units, slowing down rising rents across the country. But rents continue to rise faster than incomes can keep up, Zillow reported in its October Real Estate Market Report.
- U.S. rental rates rose 4.5% annually in October, down from 5.3% in September and from a 6.6% high in July. Single-family rents rose 4.5% — faster than multifamily, which rose 3.9%, Zillow reported.
- Rents in even the hottest rental markets are seeing a slowdown, but increased inventory hasn’t stopped rents in those areas, like San Francisco, from growing more than twice the national average. Annual rent increases in the Bay Area hit 19% over the summer, but have slowed to an annual growth rate of 15.2%.
Dive Insight:
Lack of inventory has been a primary factor in rising rents, Zillow’s report said, particularly in the fastest-growing markets. Portland, OR, Denver, and San Jose, CA, are all hovering around the 11% mark for annual rental rate increases. Denver has seen rents skyrocket this year as a result of the booming cannabis business, after its legalization in Colorado, and a growing tech industry. The tech industry has also kept Portland’s and San Jose’s rents on the rise, although San Jose has long been battling an affordable housing shortage.
"Despite this recent slowdown in rental appreciation, the rental affordability crisis we've been enduring for the past few years shows no signs of easing, especially as income growth remains weak," Zillow Chief Economist Dr. Svenja Gudell said. "It will take a lot more supply, and a lot more renters-turned-homeowners, to fully reverse this trend."
Home prices are also growing, and, as a result, many young people are having a hard time paying higher rents while saving for a home, bringing down the first-time homebuyer share of the market to a 30-year low. Additionally, in a recent Harvard Joint Center for Housing Studies report, researchers found that younger buyers are additionally burdened by student loan debt.
According to Zillow, home prices are continuing to rise, up 4.3% — their fastest pace since November 2014 — in the face of an expected December rate hike from the Federal Reserve, which some predict will push some on-the-fence, qualified buyers into homeownership.
