SEATTLE—Renters' incomes had been growing faster than rent checks for the past year or so, but now the latter are catching up again. Zillow said Thursday that median rents for both apartments and single-family rentals grew 2.4% nationally for the 12 months that ended Nov. 30 to reach $1,435 per month, the highest median rent the firm has reported to date.
That's nearly in line with the 2.5% annual growth in incomes during the same month, says Zillow senior economist Aaron Terrazas. November represents the first month since June 2016 in which rent growth increased at the same pace as incomes.
November also represents the second consecutive month during which rents and incomes have grown almost in lockstep, according to Terrrazas. In October, the Zillow Rent Index climbed 2.2% year-over-year, just 10 basis points slower than the 2.3% annual growth in income, according to the Bureau of Labor Statistics.
“After about a two-year slowdown, rent growth is starting to pick back up across the nation,” Terrazas says. “The slowdown in rental appreciation, combined with consistent income growth, gave renters some reprieve from worsening rental affordability over the past few years. But as rental growth begins to catch up with income growth, affordability will deteriorate, placing a squeeze on budget-constrained renters.”
It's not surprising that the West Coast leads the way in terms of Y-O-Y rent growth. The California cities of Sacramento and Riverside lead the way along with Seattle; all three metro areas are seeing Y-O-Y rent growth of more than 5%. Portland, OR rents aren't far behind with Y-O-Y growth of 4.6%.
Looking into 2018, Terrazas says rent is expected to continue gaining steam in growing employment centers, like Dallas and New York City, as well as a few smaller markets like Cleveland. “More widespread rent growth could mean homebuying demands stay high, as renters who can afford it move away from the unpredictability of rising rents toward the relative stability of a monthly mortgage payment instead,” he says.
However, with inventory remaining tight, renters are unlikely to find much relief in the for-sale market. First American Financial Corp. said Thursday that its latest Real House Price Index, for October, shows an increase of 0.9% from September and 8.6% Y-O-Y. “Over the past 12 months, affordability has declined as unadjusted house prices have increased faster than buying power and demand has continued to outpace supply,” says Mark Fleming, chief economist with First American.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
