The inaugural Zillow Rent Index shows “a healthy and growing rental market” across most of the country, even as home values continue to fall. And according to Zillow’s chief economist Stan Humphries, rents are not rising at the expense of home values. “The opposite is true.”
It appears that rent increases will continue to grow, probably until home prices hit rock bottom and foreclosures are much more affordable than new construction housing, which is stalled.
The first ever Zillow Rent Index finds that from January 2011 to January 2012 median rents increased 3%. Moreover, year-over-year almost 70% of metropolitan areas covered by the index saw rent increases while home values continued to fall.
According to the January Zillow Real Estate Market Reports—which aggregates data from 276 core-based statistical areas starting in 1996--in January 2012 home values declined 4.6% compared to January 2011 with only 7.3% of metro areas covered by the Zillow Home Value Index experiencing increases in home values.
In some large markets Zillow found rent increases were almost equal to the amount of value decreases. For example, in the Chicago metro, the Zillow Rent Index rose 9.1% year-over-year, while home values fell 10.4% during the same period. In the Minneapolis-St. Paul metro, rents rose 11% as home values fell 8.1%.
The economist argues that a flourishing rental market will help stimulate home sales “as investors snap up low-priced inventory to convert to rentals,” which in turn “will eventually” help home values hit bottom and bounce back.
At least in theory, the supply-demand effect of rising rents will eventually lead to a new balance between rental and housing prices and redeem housing as an equally affordable, thus more attractive, option than renting. The question is when and how accelerated this process may be.
Zillow data indicates some movement into that direction.
It shows national monthly rents declined 0.3% from December 2011 to January 2012, to $1,218 while home values also decreased 0.5% to $146,200.
At the same time foreclosures increased slightly in January as lenders foreclosed 8.4 out of every 10,000 homes, up from 8.1 in December, along with foreclosure re-sales--which increased on both a month-over-month and year-over-year basis--representing nearly one-in-five or 19.5% of homes sold in January.
Data and analytics are in high demand. Humphries said the index is designed to fill a void in housing market analytics.
