Home value growth has risen to levels not seen since 2005 due to a combination of strong demand and tight inventories, Zillow said in its latest Real Estate Market Report.

Rent appreciation, meanwhile, is steaming ahead in many Midwest and Sun Belt cities while declining in major coastal metros.

The high-demand market also meant more homes changed hands than at any time in the past 15 years. October's seasonally adjusted annualized rate (SAAR) of home sales was 6.85 million, according to the National Association of Realtors, which was the strongest pace since 2005. Zillow economists expect this rate to remain elevated for the coming year. It is forecasted to average 6.42 million through September 2021, which would mark the strongest year for home sales since 2006.

Home value growth accelerated from 0.9% month over month growth in September to 1% in October, the fastest rate in 15 years. That growth has only been higher – barely - on four occasions in the 24-year history of the Zillow Home Value Index: in June, July, August, and September of 2005. Typical home values now stand at $262,604.

"The red-hot housing market of this summer and fall is now clearly reflected in soaring home value appreciation," said Zillow senior economist Jeff Tucker. "We haven't seen such steep, short-term appreciation since the summer of 2005, but this time it is driven by buyers with strong credit and incomes securing affordable fixed-rate mortgages, unlike the wave of poorly-vetted, exotic mortgages that financed the last boom. The simple fact is that millions of well-qualified millennials are seriously shopping for houses and they are competing for a shortfall of homes for sale."

In September, quarterly growth for home values reached 2.3%, then the largest increase since the summer of 2013, when the U.S. was recovering from the Great Recession. In October, quarterly growth reached 2.6%, the highest since November 2005. Home values rose 6.6% year over year last October the annual growth rate was 3.9%.

No major metro area witnessed a drop in home values from September to October. Monthly value increases ranged from 0.6% in Richmond, Va., to 1.9% in San Jose. Growth accelerated in 34 of the top 50 markets, was flat in 13, and decelerated in 3: Las Vegas, Los Angeles, and Riverside.

Strength in the for-sale market has coincided with continuing weakness in the rental market. Rent prices dropped by 0.1% from September to October to $1,751. Nationwide, typical rents are up just under 0.9% compared to October 2019. Annual growth was 3.4% in October 2019.

Yearly rent declines deepened in October in former bastions of growth, including New York (-8.1%), San Francisco (-6.9%), Boston (-5%) and San Jose (-4.2%). These cities also exhibited significant month-over-month declines in rent, along with Seattle (-1.7%), Chicago (-0.9%), and Washington, DC (-0.9%).

Momentum in the rental market still favors Sun Belt and Midwestern cities. Among the 50 largest U.S. metros, leaders in rent growth since September were Providence, Rhode Island (2.2%), Phoenix (1.6%), Las Vegas (1.4%) and Riverside (1.3%). Year over year growth has been highest in Memphis (9.5%), Phoenix (8.2%), Riverside (8.1%), and Providence (7.5%).