It has been reported that rents are increasing at their slowest pace in five years. Rents have only gone up by 0.7% year over year. This figure is according to the March Zillow Real estate Market Reports. The appreciation led rent growth in the west has slowed down considerably, and the median rent is now $1,408.
According to the Zillow Chief economist, Dr Svenja Gudell, this slowing down in appreciation is due to the balancing of supply and demand. He said that the slowdown can be attributed to multi-family construction finally catching up to demand, and even outpacing it in certain areas.
However, rent cost still remains high. It is being reported that the average renter will have to experience an increase of $168 in their monthly income to catch up with where rents are now. Rent growth is expected to be around 1% over the coming year, but renters will need a raise in income to handle it.
High Rents Becoming a Burden
Gudell says that the high rent costs are a heavy burden on renter’s budgets. Many renters are hoping to become homeowners soon, and for this purpose, they need to save for the down payment. But high rents are preventing them from doing so.
He also added that in most markets, monthly mortgage payments are more affordable than the monthly rent payment. However, most prospective homeowners never reach that point of ownership because they are dealing with the expensive rent payments. Increasingly, they never have enough left over to save for a down payment.
Increasing Home Values
Apart from high rent costs, home values are also experiencing rapid growth. They have been outpacing inflation, and have recently showed growth of 6.8% year over year. The median home price has reached a figure of $196,500 according to certain reports.
The Zillow Report
Zillow covered 35 metropolitan areas in its rent growth and home values survey. Areas like New York and Northern New Jersey showed a home value index of $411,300 and the rent index change was recorded to be -1.3%. The highest home value index was recorded for San Jose, CA as $986,000, followed by San Francisco, CA at $843,200.
These reports show that while rent growth is slow, it does not really help the average renter. As long as the actual rent costs are too high, stalling appreciation will not affect the renter notably. It is already hard for the average renter to keep up with rent, let alone gear up for the expected small change in the future as well. In this case, they can hardly save for a down payment. Renters can expect to have to work harder if they seek to save enough money to become a future homeowner.