Rents Rising Faster Than Home Values

The last time this happened, home values were finally heating up after the housing bust. This time, they’re cooling off.

Rents Rising Faster Than Home Values

Buying a home is already far more affordable than renting one, and that imbalance could worsen as rents outpace home values for the first time in years.

In April, rents nationally rose an average of 4 percent compared to home values increasing by just 3 percent year-over-year, according to new data from Zillow.

One result: Renters who were considering buying are now taking that first step.

“We finally have more buyers who are serious now,” said Cyndi Mino, an agent with First Team Real Estate Agents in Huntington Beach, CA. “Landlords are raising rents ridiculously high, and people are saying, ‘That’s it — it’s time to buy.’”

In Mino’s area, first-time home buyers are finding 2-bedroom condos for $350,000 and 2-bedroom town homes for about $450,000.

Although millennials are expected to be the largest home-buying group in 2015, many first-time buyers are older, Mino said. “They never thought they would or could buy, but with rents going up, if they can save enough money to buy, they’ll pay less for a mortgage [than for rent].”

The last time this happened, it went on for a while — but the situation was considerably different.

In the wake of the housing bust, home values declined before rebounding. Rents, maintaining steady growth, easily stayed ahead.

That changed in April 2013, when home values finally heated up enough to pass rents. By April 2014, home values were sprinting at 8.8 percent year-over-year, while rent gains remained steady between 2 percent and 3 percent on an annual basis.

Now home values are cooling off, while rents pick up a little — and that’s enough for the tortoise to pass the hare.

For more information about rents and home values, visit Zillow Research or follow and ask questions of Zillow Chief Economist @StanHumphries on Twitter.

Rents Outrunning Home Values

Published by Melissa Allison on Zillow Blog.

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