According to Zillow analysis for the month of October, home values in the U.S. grew 4.3% year-over-year, while rents appreciated 4.5 % – down from 5.3% the previous year. This article from Svenja Gudell, Zillow’s Chief Economist, looks into the details of the October Zillow Real Estate Market Report.
As the U.S. housing market enters the fourth quarter of 2015, the dominant trends from the first quarter have reversed. Annual home value appreciation, previously slowing down, has accelerated; while growth in rents, previously accelerating, has begun to slow down.
In each of the first three months of 2015, annual home value growth was slower than the month prior. U.S. median home values grew 3.1% year-over-year in January (down from 3.7% in December 2014), 2.9% in February and 2.8% in March. The annual pace of rental appreciation over the same period was consistently speeding up. Median U.S. rents grew 3.6% year-over-year in January (up from 3.2% in December 2014), rising to 4% in February and 4.7% in March.
But beginning in April, annual home value appreciation has increased every month when compared to the prior month. The annual pace of rental appreciation has slowed in each month since July.
The main reason for the reversal likely hinges on the supply of homes for sale and rent. After years under construction, more rental units are beginning to come online in many cities nationwide, helping to ease rental appreciation in some areas. At the same time, the number of homes available for sale nationwide has fallen in each of the past two months, keeping some upward pressure on home values.
Still, rents continue to grow at a rapid clip, and are growing faster annually than home values overall: 4.5% year-over-year growth for rents, compared to 4.3% year-over-year growth for home values.
As rents have grown and rental affordability continues to suffer, the stability and relative affordability of homeownership may be pushing some qualified renters to make the jump to homeownership. A widely expected December rate hike from the Federal Reserve could be an additional incentive for buyers to enter the market while mortgage interest rates remain low. Reflecting this, home values are growing at their fastest pace since November 2014.
In October, the median U.S. home was worth $182,800, according to the Zillow Home Value Index, up 4.3 percent from October 2014.
Among the 35 largest metro areas in the country, 24 experienced annual home value growth that was faster than the nation’s 4.3 percent yearly pace of appreciation. Home values grew by more than 10 percent per year in six of those large metro markets: Denver (16.2%), Dallas (15.2%), San Jose (13.3%), San Francisco (12.2%), Portland (11.4%) and Miami (10.3%).
Of the largest metro areas covered by Zillow, Las Vegas, Dallas, Seattle and Sacramento, Denver, Riverside and Portland are expected to have home values grow by 5 percent or greater over the next year.
