Zillow Group IR Blog

May 2018 Real Estate Market Report

When Rent Growth Signals Stability, Not Stress

• The U.S. Zillow Rent Index rose 2.1 percent year-over-year in May, to $1,440 per month, a faster pace than a year ago but still well within the range that is considered sustainable over the long term.
• The U.S. Zillow Home Value Index rose 8.1 percent over the past year, to $216,000. Home values in San Jose, Calif., Las Vegas and Seattle are rising the fastest year-over-year.
• There were 5.3 percent fewer homes on the market nationwide in May compared to a year ago.

Median rent is growing faster this spring compared to last spring nationwide and in 27 of the nation’s 35 largest markets, according to the May Zillow Real Estate Market Report. But in 25 of those same 35 markets, rent itself was down somewhat in May compared to recent highs, a sign of the ongoing stabilization of the U.S. rental market after several years of breakneck growth rates.

Nationwide, median rent rose 2.1 percent year-over-year in May, to a Zillow Rent Index of $1,440 per month. In May 2017, rent grew at just a 0.7 percent annual pace – one-third the current rate. Among the 35 largest markets covered by Zillow, Pittsburgh, Detroit and Houston reported the greatest jump in annual rent growth this spring compared to last. Median rent in all three of these metros was falling at this time last year, but is now appreciating more than 1 percent annually (though still well below the national pace of rent appreciation).

[tableau server=”public.tableau.com” workbook=”May2018Data_0″ view=”ZRI” tabs=”no” toolbar=”no” revert=”” refresh=”yes” linktarget=”” width=”800px” height=”650px”][/tableau]

But even though it may appear rent growth has picked up significantly, some context is necessary: Last spring’s national figures represented the nadir of an almost two-year long slowdown from annual rental growth of more than 6 percent that began in summer 2015. Annual U.S. rental appreciation has picked up since last year, but has held steady between 1 percent and 3 percent in each of the past 12 months, within a range considered sustainable over the long-term.

Rents in many of the nation’s largest markets – including some of the most expensive – have also largely leveled off and even fallen somewhat from recent highs. In Seattle, for example, where annual rent growth has been among the highest in the country, rent appreciation has slowed from a 5.8 percent annual growth rate last spring, to a 3.3 percent annual growth rate now. A similar trend holds true in Los Angeles, Portland and Boston.

In 25 of the nation’s 35 largest markets, median rent itself – the actual dollar amount paid each month – is below recent highs set since Zillow began calculating the Zillow Rent Index in late 2010. In Boston, for example, median rent in May was $2,359 per month, up 1.2 percent from last May but down $47 from the series peak of $2,406 set in October 2017. On the other side of the country, in red-hot Seattle, median rent in May was $2,179 per month – again, up 3.3 percent from a year ago, but down from the recent high of $2,227 per month, also set in October.

Rather than signaling an impending crash in rents, these relatively small dollar declines from peak should be read as a sign of stabilization in these markets over the past few years as large amounts of newly built rental housing opened for occupancy in waves, helping to balance supply with demand. A majority (17) of these 25 “below-peak” markets hit their highest rent levels (since 2010) between September 2017 and January 2018, before falling off somewhat in recent months. An additional five below-peak markets hit their recent highs between July and October of 2016.

The multi-year slowdown in rent growth was most prominent in the markets that moved most quickly to add units – either because it was easy to build or because the local demands were so vocal. The ebb-and-flow of supply and demand is following slightly different timeliness in different markets, but over the past two years we have seen similar trends in markets from the Southeast to the Northwest.

Home Values Still Up, Inventory Still Down

Home values continue to appreciate across the country. The median U.S. home value rose just over 8 percent over the past year to $216,000. San Jose, Calif., Las Vegas and Seattle reported the greatest annual home value appreciation among the 35 largest U.S. metros.

The median home value in San Jose is now $1,265,300, up almost 26 percent since last May. Home values rose 15.5 percent over the past year in Las Vegas and 12.2 percent over the past year in Seattle.

[tableau server=”public.tableau.com” workbook=”May2018Data_0″ view=”ZHVI” tabs=”no” toolbar=”no” revert=”” refresh=”yes” linktarget=”” width=”800px” height=”650px”][/tableau]

Spring home shoppers have 5.3 percent fewer homes to choose from than last year, though the pace of inventory declines has been largely slowing for the past 10 months. Markets with the greatest drop in for-sale inventory are Denver, Atlanta and Pittsburgh. Home shoppers in Denver and Atlanta have 15 percent fewer homes to choose from than a year ago, and 13 percent fewer in Pittsburgh.