According to a recent article in Propertywire, median residential rental rates in the US continued to grow in January, even in areas which had previously been struggling.
The article is based on Zillow’s latest real estate report and shows the rental index in Kansas City increased by 8.5% year-on-year which is more than twice the national pace and is much faster than in markets such as Seattle, Los Angeles and Boston, where rental rates have been rapidly rising for quite some time now.
Just two years ago rental rates on the West coast had already begun an upward trend but remained flat or were even falling in St Louis. However between January last year and January this year, rental rates in this city rose by 4.2%. In spite of this the area where rental rates increased the fastest was in San Francisco where they have increased by 15% year-on-year for the past four consecutive months.
Overall, median rental rates increased by 3.3% last year, which is at near normal historical levels. The areas where rates grew the fastest included Kansas City, Nashville, Portland in Oregon, Denver and Charlotte in North Carolina. Nationally, the Zillow rental index increased by 0.4% from December 2014 to reach a median of $1,350.
According to Zillow, the demand for rental property has driven up prices but incomes have not kept up with these increases. Apparently Americans renting a home should currently expect to spend around 30% of their income whereas normal historical levels are 25%. Experts don’t believe there will be much change to this situation and anticipate problems with affordability for the next couple of years. Since the turn of the century rental rates have grown at around twice the pace of wages. This is a problem as more than a third of those renting homes at the moment would like to buy a property in the future. For many people currently renting, buying a property would mean a stable and lower monthly payment, but with rising rents these potential buyers are finding it difficult to save up a sizable deposit for a home of their own.
In the past the rental market has always been s stepping stone towards an eventual goal of home ownership but at the moment the rental market is making it increasingly difficult for potential buyers to get onto the housing ladder. A greater supply of homes would help ease the situation but this solution will take time to have an effect.