Although rental rate growth slowed over the course of 2017, Zillow reported at the start of 2018 that rates were starting to rise again. Over the past 12 months, median rents nationwide rose about 2.4 percent. This manifested in a median rental price of $1,435 per month, which, Zillow analysts noted, is the highest the company has ever reported.
“The typical renter today pays a far greater share of [their] income on rent than [they] did historically, and the [rental] rate of growth is almost matching income growth for the first time since June 2016,” observed Zillow economist Aaron Terrazas toward the end of December 2017. Analysts predicted rents would continue “gain steam” in metro areas like Dallas, Texas, and New York, New York. They also specified Cleveland, Ohio, as a “growing employment center” where rents would likely rise.
Important Trend for Investors
This trend is important to investors for multiple reasons. First of all, rising rents make owning rental properties increasingly attractive. However, with inventory in many markets at all-time lows (available housing inventory fell by 10.5 percent nationally over the course of last year), it may be difficult to buy at the prices investors have traditionally considered acceptable for rental properties. Either investors will have to revise their requirements or locate new sources of deals, and that shift should be a decision unique to each individual.
Secondly, as rents continue rising, some markets will experience a shift from being “rental” markets to “owner” markets. This means more renters will begin to explore homeownership, resulting in more home purchases being made and, in some cases, a population shift as renters opt to live elsewhere where they can afford to buy or rent homes that better meet their needs. Zillow analysts predicted that home-buying demands would remain high in 2018 thanks, in large part, to “renters who can afford it moving away from the unpredictability of rising rents.”