As if record low mortgage rates and beaten down home prices weren’t enough to get prospective home buyers off the fence, there’s another factor that has made the case for buying even stronger: rising rents.
U.S. rents rose an average of 5.4% over the 12 months ended June 30, according to real estate website Trulia. Demand from former homeowners displaced by foreclosure and potential homebuyers who failed to qualify for mortgages have helped to send rents skyward.
“With rents rising faster than prices in most markets, buying is getting even more affordable relative to renting,” said Jed Kolko, Trulia’s chief economist.
Meanwhile, asking prices on homes listed for sale inched up a mere 0.3% over the same period, according to Trulia’s data. And while that’s the fourth increase in home prices in five months — an indication that prices may be starting to recover — the gains are modest compared to the increases in rental rates over the past 12 months.
The Trulia Price Monitor and Trulia Rent Monitor are the earliest leading indicators of how asking prices and rents are trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices and rents. Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed.
Asking prices were up once again month over month in June, by 0.3%. Aside from May, when asking prices increased by so little that they were essentially unchanged, asking prices have moved up every month since February. Now, even the year-over-year price change is positive. Foreclosures hold back price gains; when we exclude foreclosed homes, prices are up 1.7% year-over-year. At the local level, prices have risen quarter-over-quarter in 84 of the 100 largest metros, seasonally adjusted – these widespread gains are in addition to the typical springtime boost. Now that’s real progress.
Although prices have increased, rents have risen faster, at 5.4% year over year. In 22 of the 25 largest rental markets, rents are outpacing prices. This means that buying a home is becoming an even better deal relative to renting – that is, for those who can qualify for a mortgage and put up the down payment.
Are there any signs of rents slowing down? Not really. In most markets, the year-over-year increase in June was higher than in March. In San Francisco, for instance, rents were up 14.7% year over year in June compared with 10.9% in March. Oakland, Portland, Philadelphia and Houston have also seen rent increases accelerate since March.