While home values continue to fall nationwide, rental rates are soaring in many Metropolitan Statistical Areas, according to Zillow’s latest real estate market report.
Out of 276 MSAs looked at in Zillow’s report, 70% of markets are seeing rental price increases year-over-year through January. On the contrary, only 7% of home values are rising during the same time period.
The average rental price rose 3% from January 2011 to January 2012, while home values fell 4.6% over the course of the year.
“The flourishing rental market is the silver lining to the nation's housing downturn," said Stan Humphries, chief economist at Zillow. “We haven't had a good way to quantify what is happening with rental rates until now, and the inaugural Zillow Rent Index shows us a healthy and growing rental market across the majority of the country, even as home values continue to fall.”
The Seattle-based real estate information provider said that some large markets saw a nearly identical rise in rental rates compared to loss in home prices. For example, the year-over-year rent index—estimated monthly rental price for a geographic area including the value of all single-family residences, condominiums, cooperatives and apartments in Zillow’s database, regardless of whether they are currently listed for rent—for Chicago was up 9.1%, while home prices fell 10.4%. In Minneapolis-St. Paul, rents rose 11% and home values dropped 8.1%.
However, over the last month, national rents declines slightly (0.3%) to $1,218. Home values also were down 0.5% from December to January, averaging at $146,200.
“While it seems that rents are rising at the expense of home values, the opposite is true. A thriving rental market will stimulate home sales as investors snap up low-priced inventory to convert to rentals,” Humphries said. “That, in turn, will lower the number of homes on the market, which will eventually help put a floor under the value of all homes. Moreover, rising rents increase demand as buying becomes more attractive than renting because of low purchase prices and higher rents.”
