While the housing market continues to experience a slowdown in home sales and price appreciation, new data from Zillow suggests the rental market is heating up.
According to the company’s Real Estate Market Report, February’s rental prices climbed at the fastest rate in the last 10 months.
In fact, February’s 2.4% year-over-year price appreciation drove the U.S. median rent price up to $1,472.
Not only is this a jump from last year’s $1,438, but it also translates to more than $400 in additional annual expenses for the average renter.
That being said, while annual rent growth accelerated in the majority of large housing markets, Orlando and Pittsburgh were the only two rental markets to experience a slowdown.
Despite their cool off, both still saw higher-than-average growth, with Orlando rents growing faster than any other large metro at 7%.
But will this momentum last? Well, Zillow Economist Jeff Tucker warns this sudden spark could soon go dim.
"The rental market spent part of last year catching its breath after several years of breakneck growth," Zillow Economist Jeff Tucker said. "Landlords are now coming to terms with the fact that rent cannot grow faster than income forever, and after that short correction we can expect a much more vanilla, slow-growth market going forward. As we enter the 2020s, the demand for rentals is projected to fall as many millennials move on to homeownership."
And Tucker could be right, because according to CoreLogic Deputy Chief Economist Ralph McLaughlin, a large percentage of 2018’s Q4 homeownership growth came from young renters transitioning into homebuyers.
“The fourth quarter of 2018 was the fifth consecutive quarter that owner-occupied households grew by more than a million, at 1.7 million new owner households,” McLaughlin wrote in a report. “At the same time, the number of new renter households fell six out of the past seven quarters with a decrease of 167,000 households. This suggests that the increase in the homeownership rates is at least partly due to households making a switch from renting to owning.”
