US Rental Market Continues to Outperform

More good news for buy to let investors as leading US property portal Zillow reports the rental sector is continuing to outperform the rest of the market. In its real estate market report for February, Zillow records a 2% growth in median rents across the US...

More good news for buy to let investors as leading US property portal Zillow reports the rental sector is continuing to outperform the rest of the market. In its real estate market report for February, Zillow records a 2% growth in median rents across the US in the year ending February, while house values continued to fall, down by 4.5% during the same period.

Further, the Zillow Rent Index (ZRI) recorded year on year rent growth in 68 percent of metropolitan areas it analysed, while the Zillow Home Value Index recorded growth in only 8% of metropolitan areas it covers.

The report shows two trends. One very interesting trend is that the areas with the strongest rental markets are those where home values are still falling hard. The report gives Chicago Metro as an example of this, with rents up 8.6% during the year ending February, while home values have fallen 11% during the same period. Philadelphia is another example of this, with rents up 14.8% and home values down 5.8% in the year ending February.

This would seem to indicate that even though the continued decline in home values is increasing affordability, that the corresponding reduction in confidence is making renting more appealing, cancelling out the benefit. However, mortgages are still a huge problem, and this could also be the explanation; or maybe a little of both.

The second trend is that foreclosures continue to pull down home values. According to the report foreclosure sales accounted for 20.3% of all sales in February, beating the previous high of 20.2% set in March 2011. That said foreclosure re-sales are very much driven by the seasons, with January and February typically seeing strong foreclosure sales.

"We have made it through the worst of the housing recession with a bottom on the horizon, but the deep backlog of foreclosures, elevated negative equity and high unemployment are all still obstacles on the road to recovery," said Zillow Senior Economist Svenja Gudell. "The rental market remains a bright spot in the housing market, where many markets, especially hard hit ones, are experiencing significant annual rent appreciation and drawing the attention of investors. Converting distressed and vacant properties into rental units will reduce the oversupply of homes and speed up the recovery process."

- Thursday 12 April 2012

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