Zillow Housing Market Update October

Rental Rates Continue To Move Higher

The final graph in today’s Zillow Housing Report explains while there is no housing bubble, the housing market is in worse shape than it was during the housing bubble years. It measures what Zillow refers to as the “typical observed market rental rate” and, like its Home Value Index, takes a swipe from the middle of market rents to approximate the median rental rate over time.

Zillow's measurement of the change in rental rates October 2022

The blue area measures the rental rate index each month (median rent), while the red line plots the year-over-year percentage change each month. It is this red line that is disturbing.

As the inventory of homes for sale has declined, so has the inventory of homes for rent. People who must move today have no good choice between buying versus renting a home. The cost for each has exploded higher.

In September, the median rental rate of $2,084 was nearly 11% higher than the median rental rate of $1,882 recorded in September 2021. Can you imagine if your monthly rent was increased from $1,900 to over $2,100 per month? If the rate remains the same over the next year, the median unit will rent for $2,300 per month, a rent hike of more than $400 monthly in just two years!

The only good news to report on rents is that the growth rate is slowing (albeit to a double-digit rate).

I often receive comments from viewers on our YouTube Channel saying they are waiting for home prices to fall. I certainly understand the feeling, but I have to wonder, where are they living while waiting?

Are they waiting in a rental property where their lease renewal will be 11% higher this year after rising about the same last year? Or are they waiting in a home they own? If they are right and home prices drop, won’t the home they own drop too? This means they’ll sell cheaper to buy cheaper! So what’s the point in waiting? That’s the trouble with trying to time the housing market, either way, you’ll pay more.

The fact that both rents and prices are moving higher together confirms that the supply of homes in the US is insufficient to house our growing population. Overall, when supply is insufficient to fulfill demand, prices rise. Until we see significant output from US home builders, we should continue to anticipate rising prices (and rising rents). There will be markets where the supply of homes outpaces demand, but overall, the US housing market remains undersupplied.

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