Renters take note: It's getting harder to buy a home today, but it may be getting easier to stay right where you are. Home price gains are accelerating, but rents are moderating and could ease substantially in some markets. By the end of this year, rents may actually rise at a slower pace than incomes in many markets, according to a new analysis by Zillow, a real estate listing company.
Zillow is forecasting a 1.1 percent annual rent appreciation rate by December, down from 4.5 percent at the end of 2015, according to Reis, a commercial real estate analytics company. Some markets are still seeing double-digit rent growth.
Home price gains, meanwhile, are accelerating at what the National Association of Realtors' chief economist Lawrence Yun recently called an "unhealthy and unsustainable" pace. Home prices are rising because of limited listings and rising buyer demand. The supply of homes for sale in December was the lowest in 10 years, according to the NAR, and annual home price gains nationally rose to 5.3 percent in November, compared with 5.1 percent in October, according to S&P/Case-Shiller.
"Hot markets are still going to be hot in 2016, but rents won't rise as quickly as they have been," said Zillow chief economist Svenja Gudell.
"The slowdown in rental appreciation will provide some relief for renters who've been seeing their rents rise dramatically every single year for the past few years. However, the situation remains tough on the ground: Rents are still rising and renters are struggling to keep up."
Robust apartment development in the last few years has added much-needed supply to major urban markets. Developers, however, have added less supply to smaller, suburban areas, where renters are struggling. The cost of construction is simply too high to take anything but top-dollar rent, so developers stick to top-tier properties.
Of course, all real estate is local, and the rental pain will vary accordingly. Cities seeing the highest rent growth in 2016, according to Zillow:
1) San Jose, Calif. – 7.8 percent
2) Buffalo, N.Y. – 7.4 percent
3) San Francisco – 5.9 percent
4) Seattle – 4.5 percent
5) Denver – 4 percent
6) Portland, Ore. – 3.8 percent
7) Miami-Fort Lauderdale – 3.5 percent
8) Austin, Texas and Sacramento, Calif. – 3.4 percent
9) Louisville-Jefferson County, Ky. – 3.2 percent
10) Los Angeles-Long Beach-Anaheim – 2.8 percent
Some of these hot markets, however, could see the biggest drop in rent growth, due to new supply. Zillow points to Atlanta, Denver, Portland and Seattle as rental markets that could see the most easing. Rents will still grow, but potentially at a much slower pace. By the end of 2016, rents could be lower in St. Louis, Indianapolis, Chicago, Philadelphia, Pittsburgh and Detroit, according to the report.